The Secret Bailout

Everybody remembers the Federal Reserve's bailout of the banks.  The Federal Reserve did that by printing over $1.5 trillion dollars to give to the banks.  And then Congress and the President got involved by creating TARP loans to save the banks as well as other non-bank companies.  But most people think that is over.  But it is not.  It is still going on and taxpayers are getting stuck with the bill.  How?

Through Fannie Mae and Freddie Mac.  These two quasi-government agencies were created to help make cheap mortgage loans so that more people could enjoy the American dream of home ownership.  The government is not contractually obligated to cover the debts of these two organizations, therefore their debt does not count as part of the U.S. official debt number.  Rather this is off the books debt.  However, the government has continued to support Fannie Mae and Freddie Mac by covering their deficits each and every month.  And its the taxpayers that are footing this bill.

Every month Fannie Mae and Freddie Mac are purchasing mortgages from the big Wall Street banks.  They are paying full price for mortgages that were previously priced at zero (because no one else wants to buy them).  This keeps the banks from losing money on these mortgages.  The banks aren't lending this extra money, but instead are putting it to work in the stock market. The stock market continues to go up as a result.  Fannie and Freddie are left with a bunch of worthless mortgages which they promptly write off and then ask the federal government to cover their losses.

Since the Federal Reserve is under so much heat right now for printing so much money, this is a way to keep this off of  there books.  Since Fannie and Freddie are only quasi-government agencies, their debt isn't official for the U.S.  And yet every single month the U.S. Treasury sends them money to cover their losses.  Money they are getting from U.S. taxpayers.

Nobody knows the real number but it is estimated to be anywhere from $500 billion to $3 trillion.

While the public was appropriately outraged at the TARP bailouts, no one knows or cares about what Fannie and Freddie are doing.  It is the perfect backdoor bailout.