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New Documents Show Treasury Used Fannie and Freddie as an ATM

by Thomas Aiello / /

Taxpayers, prepare to be surprised … well, maybe not so surprised given the federal government’s penchant for doing anything to hide its habit of deficit spending.

In 2008, Washington agreed to bail out Fannie Mae and Freddie Mac with $187 billion in taxpayer dollars in exchange for a payment of a 10 percent annual dividend from the Government-Sponsored Enterprise’s (GSEs). However, in 2012, the government abruptly changed the terms of the agreement singlehandedly -- instead of receiving 10 percent of the profits, the government simply mandated that the GSEs hand over all the profits from both companies every quarter! Officials stated on numerous occasions that this measure was necessary to insulate taxpayers from future losses, should the GSEs’ financial standing be uncertain in a new crisis.

While many taxpayer advocates have long questioned that rationale, it wasn’t until last week that their suspicions received at least some confirmation. In newly released documents from 2011 and 2012, then-Treasury Secretary Tim Geithner was informed that by the end of the year Fannie and Freddie were expected to have a positive net-income. Additionally, the memo concludes to the Secretary that the government would earn more money “through a revenue sweep than it would if the 10 percent dividend was still in effect.” This unusual maneuver has depleted the GSEs’ assets and currently operate a multi-trillion dollar scheme with almost no capital, ironically exposing the taxpayer to greater risk.

These documents were released last week because a lawsuit was brought by the shareholders of Fannie and Freddie who believe the government shortchanged them of billions in returns. From these documents it appears that the Secretary had full knowledge that the GSE’s would be profitable soon and decided to bring more money into a Treasury that was still wrestling with budget deficits north of half a trillion dollars a year. This latest development only provides further reason to remove the government from the mortgage finance business -- federal leaders won’t let anyone, including taxpayers and shareholders, get in the way of their quest for cash.