Kucinich among lawmakers worried that Fannie, Freddie assistance creates 'unlimited' bank bailout
The cost to taxpayers of bailing out mortgage companies Fannie Mae and Freddie Mac could more than double over the next three years, making it the most expensive of all the recent bailouts.
That comes as no surprise to some critics of the bailouts, who have been arguing that federal assistance to the two mortgage companies is a way of hiding the true cost of the massive TARP bailout to Wall Street banks.
They say that, because Fannie and Freddie have been buying bad mortgages from the banks, the true cost of the bank bailouts is being shifted through a "backdoor bailout" of the mortgage companies.
A report (PDF) from the Federal Housing Finance Agency says the Fannie and Freddie bailout -- which began when the federal government took control of the two companies in September, 2008 -- has already cost taxpayers $135 billion. If the country were to fall into another recession in the coming months, the companies could require another $215 billion in cash.
Under that scenario, the total given to the two companies would be $363 billion. But because Fannie and Freddie are paying dividends back to the government, the total cost to taxpayers would be $259 billion.
The Associated Press notes that this would make the Fannie and Freddie bailout the most expensive of all the bailouts, exceeding even the TARP bailout of investment banks, which was originally set to cost $700 billion, but ended up reportedly making a profit for taxpayers instead.
By contrast, the combined bailouts of financial companies and the auto industry have cost taxpayers roughly $50 billion, according to the Treasury Department's latest projections. And the bailouts of Wall Street banks alone, which sparked public fury, have so far brought taxpayers a $16 billion return....
Compare that with what was once the most expensive single bailout — American International Group Inc. That is now projected to cost taxpayers only $5 billion. Even that bailout could turn a profit, Treasury said this month, if its sale of AIG shares succeeds.
AP concludes that "the combined bailout of the two mortgage companies is on track to be the largest of the financial crisis."
But David Dayen at FireDogLake argues that the cost of the Fannie and Freddie is really the actual cost of the bank bailout, because Fannie and Freddie bought up many of the banks' bad mortgages.
Quick question: Where are the Fannie and Freddie losses coming from? Answer: bad loans they bought. Quick question: Where did the bad loans come from? Answer: the banks. ... [T]he losses of TARP are being realized in Fannie and Freddie.
Fannie Mae and Freddie Mac had been operating as "government-sponsored enterprises" for decades when they were taken over by the US government is 2008. Their purpose was to make it easier to buy homes in the US by buying or guaranteeing mortgages.
When the Bush administration took over Fannie and Freddie, it pledged $200 billion to the rescue effort. In late 2009, the Obama administration extended an unlimited line of credit to the banks, prompting critics to suggest that the government was planning to hide the true cost of TARP through the Fannie and Freddie bailout.
House Rep. Dennis Kucinich (D-OH) was among those critics.
"This new authority must be used responsibly and for the benefit of American families," Kucinich said. It "cannot be used simply to purchase toxic assets at inflated prices, thus transferring the losses to the U. S. taxpayers and acting as a backdoor TARP."
Kucinich is not the only one on Capitol Hill up in arms. House Energy and Commerce Committee Chairman Henry Waxman, a California Democrat, said he doesn't like the idea of a "blank check" for Fannie and Freddie.
And Darrell Issa, the top Republican on the House Oversight and Government Reform Committee, called it "a continuation of the bailout policies that have mortgaged away the future solvency of our country."
..."This looks like the original TARP," [Dean] Baker [co-director of the Center for Economic Policy Research] said, referring to $700 billion financial rescue fund, known officially as the Troubled Asset Relief Program.