Fannie and Freddie Insolvent?
(Reuters) - Mortgage lenders Fannie Mae (NYSE:FNM - News) and Freddie Mac (NYSE:FRE - News) are "insolvent" and may need a U.S. government bailout, former St. Louis Federal Reserve President William Poole was quoted as saying in an interview with Bloomberg.
Wow. Insolvent is a pretty harsh word. I'm no fan of either of those companies, existing, as they do, with privileges they've neither earned nor responsibly utilized, but remarks like this only increase the likelihood that taxpayers will have to shell out a bazillion bazillion to keep these horribly undercapitalized businesses from failing.
Better to let people believe in the taxpayer backing long enough to unwind them in a more orderly fashion, or at least convince some big pools of private money that their capital injections won't evaporate in months. In other words, let private investors take the risk, the bath, and the potential rewards for investing in what is essentially a pair of giant Ponzi schemes.
As it stands now, the two benefit from the implicit taxpayer backing, yet pay out giant amounts of money to bloated execs and private shareholders. That's the worst kind of socialism -- the kind that pretends to help the many, but instead sticks them with the bill for the potential benefit of a few.