The Fannie and Freddie Experiment Was a "Total Failure"

Warren Buffett and Charlie Munger don't think the old Fannie Mae and Freddie Mac have a place in the world.

May 5, 2014 at 7:30AM


Despite recent reports suggesting Warren Buffett was open to filling a potential void in the housing finance market if Fannie Mae and Freddie Mac were wound down, Buffett and Charlie Munger all but squashed that notion during the Berkshire Hathaway annual shareholder meeting on Saturday.

During the famous day-long Q&A session with Berkshire shareholders, a questioner asked if Buffett thought Berkshire could play a large role in a more privatized housing finance market because of Berkshire's underwriting expertise and experience in the housing market. 

Buffett said it was very unlikely that Berkshire would become a big player in that market.

So what does Buffett think should happen to the market?

Buffett highlighted the U.S. housing market's enormous size ($11 trillion) as a massive challenge to privatizing the market simply because there isn't enough capacity in the private insurance market.

He seemed to believe a system similar to the plan proposed by Sens. Johnson and Crapo, as well as Sens. Corker and Warner, could potentially work. Noting that the 30-year fixed rate mortgage is a great thing for the average American, Buffett said the government ultimately needs to be the insurance entity to keep rates low. 


His partner, Charlie Munger, took a more blunt stance.

Munger believes the current system is best option: Continue to conservatively run Fannie Mae and Freddie Mac and do not return the entities to the hands of private shareholders. Despite addressing the common concerns with the current model, Munger expressed even more doubt that private mortgage finance players would operate a better system. 

One of the largest drivers of the collapse of Fannie Mae and Freddie Mac was the pressure to deliver continued earning-per-share growth for the private shareholders. Both companies aimed to achieve this growth by taking out cheap debt and building massive securities portfolios.

These legacy portfolios are currently being wound down -- a move Buffett and Munger agreed was the right one. They said the two GSEs were essentially operating as the country's largest hedge funds before the housing crisis.

As current common and preferred shareholders continue to hang in a state of financial-limbo, the path to significant profits (outside of potential legal settlements) continues to look like one littered with road-blocks. Any passable law making its way around Congress ignores these shareholders and now two of the best business minds in the world in Buffett and Munger agree that returning these entities to private hands would be a mistake.

Munger wrapped up the discussion by saying that the old Fannie Mae and Freddie Mac "experiment was a total failure."

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

Read about the entire Berkshire Hathaway Q&A session here!

David Hanson owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers