Freddie Mac: "Please, Sir, More Capital?"

Earlier in the week, Freddie Mac (NYSE: FRE  ) announced that it would need to tap $30.8 billion of additional capital from the U.S. Treasury. That says plenty about the deteriorating quality of mortgage-related assets, but I'd rather focus on a company statement that underscores the trouble with much, if not all, of the government's variously ineffective interventions.

Borrowers keepers, lenders weepers
In regard to its ability to repay principal, the company revealed, "We may not be able to do so for the foreseeable future, if at all."

What gives, Fred?

The trouble, apparently, is that the mortgage giant is already financially hamstrung by the heady 10% dividend it owes on the government's senior preferred shares, which, following the recent capital infusion, will bring the annual dividend payout up to $4.6 billion. That's a hefty chunk of change; in fact, it exceeds the company's earnings in many of the previous years.

Perhaps the lender will do better in the near future, you say? Not likely. Given that Freddie Mac and Fannie Mae (NYSE: FNM  ) are primary tools in the Obama administration's plan to ease mortgage rates and offer succor to despondent homeowners, any improvement in interest margins looks to be pie in the sky.

Bound for nowhere
Listen up, says the track coach, I want to you to win this race so I'm gonna make sure that you get a head start. Now come here, so I can bind your legs.

Sound familiar? It should. That is the essence of the government's intervention paradigm.

In the case of Bank of America (NYSE; BAC), Wells Fargo (NYSE: WFC  ) , Citigroup (NYSE: C  ) , JPMorgan Chase (NYSE: JPM  ) , and other banks that have received government capital, the counterintuitive exhortation has been to get solvent and lend a lot while you're at it. For Freddie Mac, that 10% dividend is the government's preferred (no pun intended) method of helping by hurting by helping.

Look, I'm about as reluctant as the next person when it comes to inviting Uncle Sam into the sandbox. But if the government is going to intervene, then it should plot a course that at least makes financial sense. Instead, we get deals that include showy, but wildly impractical, compromises between the private sector and the taxpayer.

If you are going to pick my pocket to safeguard my financial future, dear Government, a sound business plan will make me feel better about the whole thing; a token gesture won't.

Government fumbles abound! Read more play-by-play commentary:

Fool contributor Mike Pienciak does not hold shares in any company mentioned. The Fool's disclosure policy has not issued preferred shares to the government, and would prefer not to.


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