$FNMA #FANNIEGATE

Peter J. Wallison

10:39 AM (22 minutes ago)

to me, Ryan

Glen: I don’t read the Fiderer’s blog, and wouldn’t trust anything he writes, but your numbers seem to be roughly in the ballpark. There are several errors that most people make when they discuss this issue.

First, it is necessary to understand that Fannie and Freddie are only paying “interest” (really dividends on the preferred stock the government purchased in 2008 to keep them afloat). They have not paid back principal, which is the amount that was actually been lent to them (in the form of the preferred stock purchases) by the Treasury. If an individual has a mortgage or any other debt on which he owes interest as well as principal, the debt is not canceled until he has paid back the principal; it is not canceled when the total interest payments exceed the amount of the loan. This becomes very obvious when you look at the information on your credit card statement, which usually shows a huge amount to pay over time if you don’t pay immediately the full amount of the outstanding principal that you owe.

Second, the Treasury is very likely going to have to bail out Fannie and Freddie in the future—Freddie has already had one loss quarter--in which case the amount Treasury is receiving will be used again to keep the firms operating.

Third, when Fannie and Freddie pay money to Treasury, they are returning money to the taxpayers, not taking money from them; all payments to the Treasury reduce the annual national deficit and in that sense reduce the future burden of the taxpayers and their children and grandchildren.

Fourth, if the payments were kept by Fannie and Freddie, they would not go to the taxpayers anyway; they would go to the shareholders, who continue to have an interest in Fannie and Freddie only because—in 2008--the taxpayers saved their companies from collapse with bailouts. In other words, if Fannie and Freddie were allowed to keep the profits they are earning now it would be a gift from the taxpayers to their shareholders.

Fannie and Freddie were and are a terrible idea, based on the notion that private managers and shareholders should be able to reap the profits from government-backed companies, but when those companies fail the taxpayers, and not their shareholders, should bear the losses.

Best regards, Peter

Peter J. Wallison Arthur F. Burns Fellow in Financial Policy Studies American Enterprise Institute

From: Glen Bradford Sent: Monday, December 28, 2015 1:53 AM To: Peter J. Wallison Subject: Fanniegate - a new book I wrote

Hi Peter,

Saw an exchange between you and Bill Maloni on Fiderer's new blog. I thought it was interesting and was curious if you would entertain my two thoughts for accuracy:

1. Do you agree that Fannie and Freddie borrowed $132.2B?

2. Do you agree that Fannie and Freddie paid back or will pay back $241B per the most recent pmt?

The corollary is that by some fluke FHFA has somehow managed to sweep the difference away from the private taxpayers to the tax collector US Treasury, a total of now over $100B rounding out to $15B/annum since conservatorship started.

If I'm wrong, please put me right. Thanks in advance.

Do Not Lose,

1. Richard Bradford, III

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