My friend Whitney Tilson forwarded an article to me with a very simple note attached: "What a disgrace!" I couldn't have said it better.
The contents of the article were thus: The Congressional Hispanic Caucus, which receives large donations from Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE), is urging the Federal Reserve to drop an already completed study that shows that the two government-sponsored housing enterprises do not appreciably lower mortgage costs for consumers. Further, the report strongly suggests that the $15 billion in annual federal subsidies to the government-sponsored housing enterprises are largely unnecessary.
Let me take a second to translate, because I fear that many people fail to make a connection when we talk about federal funds. Fifteen billion of your tax money goes into subsidizing Fannie Mae and Freddie Mac (along with the Federal Home Loan Bank system). The Federal Reserve has determined that this money is largely wasted.
Obviously, neither Fannie Mae nor Freddie Mac is very excited about the prospect of the Federal Reserve recommending that their taxpayer-funded gravy train be shut down, and so these entities have fired up the lobbying machine, meeting with the Hispanic Caucus and showing that a decrease in the subsidies for mortgages would have on their constituencies. Never mind the squishy economics involved in making such a claim, typical of the single-stage thinking that is so prevalent on Capitol Hill. And consider this simple fact: Fannie Mae and Freddie Mac are, by playing the "Well, it will hurt this constituency" card, conceding that the basic premise of the Federal Reserve study is true. The Hispanic Caucus is only too willing to play along, and has given Fannie and Freddie input into their response.
That is a disgrace. Fifteen billion dollars of our money being flushed down the drain, and congressionally chartered entities doing what they can from blocking another federal entity from making its findings public. Now, certainly, $15 billion isn't as much money as it once was, but I've got enough faith in capitalism to note that this amount of money, left in the hands of private citizenry, could create an enormous number of jobs.
You get the distinct feeling that Fannie Mae is quick with the numbers when it suits itself. It anxiously pointed out that 164,000 first-time minority homeowners would be priced out of the market if interest rates rose a quarter point, but it refuses to comply with requests from Sen. Chuck Hagel (R- Neb.) to report the amount of unrecoverable losses from its massive derivative book -- a substantially more important component for every Fannie Mae constituency, including shareholders, bond holders, homeowners, and, most importantly, taxpayers. If the numbers are accurate -- $15 billion and 164,000 homeowners -- that comes out to more than $91,000 in subsidies per family.
Fannie Mae and Freddie Mac are fighting tooth and nail any attempts on Capitol Hill to reform oversight and regulations affecting the companies. Naturally, neither would be interested in letting that $15 billion in taxpayer money walk away. But remember, this isn't Freddie's money, nor is it Fannie's. It's yours. And at the moment, these two congressionally chartered entities are attempting to block a report that states that these expenditures are largely unnecessary, never mind whether or not it happens to be true.
The report is complete. I hope the Fed has the courage to go ahead and release it.
