Fannie Mae and Freddie Mac Will Draw Up To $363 Billion Through 2013

Taxpayers will pay a very stiff price for allowing the government to over-encourage homeownership. Yesterday, the Federal Housing Finance Agency released estimates that through 2013, Fannie Mae (FNMA) and Freddie Mac (FMCC) will draw between $221 billion and $363 billion from the Treasury under three different economic scenarios. Since they were taken over on September 7, 2008, Fannie Mae and Freddie Mac have drawn $148 billion. Cleaning up this mess will take well beyond 2013, so these costs could rise higher.

Treasury is due to release a proposal for what to do with Fannie Mae and Freddie Mac in President Obama’s FY12 budget, due February 7, 2011. Secretary Tim Geithner has vowed to prevent them from ever again running up such losses, but it’s unclear how he would do that. Some would privative them and force them to compete in the market. Others would make them a government agency, but with strict limits on risk taking. The days of allowing them to operate as quasi-private agencies with an implicit – now explicit – federal funding guarantee are over. This American Enterprise Institute brief lays out the options well. AEI has long supported privatization. Congress would have to act to reform Fannie Mae and Freddie Mac, and it may take years for a compromise to emerge. Meanwhile, the taxpayers will pay.

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About Pete Davis 99 Articles

Affiliation: Davis Capital Investment Ideas

Pete Davis advises Wall Street money managers on Washington policy developments that affect the financial markets. President of his own consulting firm since 1992, Davis Capital Investment Ideas, he draws on 11 years of experience as a Capitol Hill economist with the Joint Committee on Taxation (1974-1981), the Senate Budget Committee (1981-1983), and Senator Robert C. Byrd (1992). He worked in the House and Senate, and for Republicans and Democrats.

Davis brought the first computer policy model, the Treasury Individual Income Tax Model, to Capitol Hill in early 1974, when he became a revenue estimator on the Joint Committee on Taxation. He formulated the 1975 rebate, the earned income tax credit, the 1976 estate tax rates, the 1978 marginal tax rates, and the Roth-Kemp tax cut. He left Capitol Hill in 1983 for the Washington Research Office of Prudential-Bache Securities, where he advised investors for seven years.

Davis has long written a newsletter on the Washington-Wall Street connection for his clients; Capital Gains and Games is his first foray into the blogosphere.

Visit: Capital Gains and Games

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