Fannie & Freddie: Science Projects Gone Wrong

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November 14, 2008 09:09 AM EST by Brian Sullivan

Fannie & Freddie: Science Projects Gone Wrong

Under the mountains of Switzerland lives one of the biggest science projects of all time. It's a $15 billion dollar operation called the Large Hadron Collider. It is designed to figure out what the universe is made of by accelerating particles to a rate just under the speed of light, bouncing them against each other, and seeing what happens.   Cool stuff.

Opponents of the project expressed fear that the effort could result in a disastrous unintended consequence: the creation of a black hole.   A giant vacuum that starts eating matter until it has completely devoured the earth from the inside out.

Those fears have been realized. We have not only created a black hole, but two. Not the world-eating monster doomsday theorists feared.   These eat money, not matter. They are called Fannie Mae and Freddie Mac.

This morning Freddie said it posted a record third quarter loss of $25.4 billion dollars.   That's a per-share loss of $19.44.    Not surprisingly, it needs more money.   It's asking the Treasury for another $13.8 billion dollars. This looks relatively modest compared to Fannie Mae's quarterly loss of $29 billion bucks.

The problem with these devourers of capital is that they are not normal companies. These are entities which possess a near explicit government guarantee on their assets.   They operate under a federally-sponsored conservatorship and more money may be needed to keep them out of full fledged liquidation.

$55 billion dollars wiped out in just three months between the two.   An endless buffett of taxpayer cooking. As the debate rages on in Washington about whether to help GM, Ford and Chrysler, Fannie and Freddie continue to wipe out capital at a record pace.   But it also is getting more to eat every time it cleans the plate.

It must be all about housing, because it's surely not about jobs. Fannie Mae employs about 6,400 people.   Freddie Mac just over 5,000 at last count.   Even as it works to get smaller, GM still has more than 200,000 workers.

While scientists in Switzerland rush to smash particles together, Americans don't have to venture under the Alps to see nearly the same thing.   Fannie and Freddie are the ultimate collision of money and politics, and the black hole has been realized.

10 Comments

Steve

Geez that's a lot of my tax dollars! I know that Iraq is costing $10bil a month (but at least we're getting something out of it!), but $50billion a quarter! What has Fannie Mae or Freddie Mac done for this money? That's what I'd like to know!!!

November 25, 2008 at 2:31 am

mike higgins

Which is worse, two finncial activities that had congressional approval to evntually fail, or the congressional oversight activities that looked the other way and let it happen? Isn't it odd the timing of their failure? Coincidence, I think not.

November 17, 2008 at 7:27 am

B Scott

Answer for Mike, they,ve put something in the constituents water supplies.

November 15, 2008 at 3:49 pm

chuck

Brian Freddie and Frannie are examples of how GSE fall into the blackholes. Beside a science project,Frannie and Freddie would make terrific business case studies on how hybrid enterprises go wrong. Seriously. I wonder what would a Harvard Business Professor would say,Wharton Business Professor would say too. Bet it would make interesting reading from a business academic POV.

November 14, 2008 at 4:30 pm

Ordinary Guy

Actually, Freddie and Fanny were binary black holes that have combined to from a Super Massive Black Hole. Due to the SMB’s super dense material, orbiting stars, named Logic and Reason, have been devoured and have crossed the event horizon. If we could see them, their forms would be stretched beyond recognition trapped at the event horizon forever. The only evidence of their existence is the bright jet light from the burning money radiating into the void.

November 14, 2008 at 3:03 pm

Jan

Thanks for explaining this, because the public just doesn't seem to understand the undercurrent of Freddie Mac and Fannie Mae, and just how much they have to do with Congress!

November 14, 2008 at 1:42 pm

Bob

Brian, I am in real estate in Arizona. I sell foreclosures for Fannie Mae. You are so right. I used to think they were bleeding cash, but in that case the cash is laying around for others to use. You are right, it seems to be sucking it in to try to prop up the paper. The paper is lost. Our number of VACANT homes on th emls are actually going up in the last 2 months. Demand will be the only thing that brings us out and it's not really there. People have very little interest in adding more leverage. Investors know the demand is weak so they feel no need to get what everyone else does not want. Buyers include only 3 types here: People looking for a home to live in for awhile. Investors with cash willing to make a long term buy and hold. People trying to buy and bail on the old house(it can still be done). Thats it!

November 14, 2008 at 1:30 pm

Mike

Huck wrote that this is being done "AGAINST THE WILL OF THE CONSTITUENTS", but if that is truely the case why did the consituents vote them all back into congress and give them even more power?

November 14, 2008 at 12:05 pm

huck

The thing is this project is killing the economy - AGAINST THE WILL OF THE CONSTITUENTS.

November 14, 2008 at 11:34 am

Shawn

Brian Great artical. I gat a laugh from it for just a minute but then reality sinks in and it makes you want to CRY.

November 14, 2008 at 10:28 am

about this blog

Brian Sullivan joined FOX Business Network (FBN) in April 2008 as an anchor. He co-anchors the 10am-12pm ET hours of the FOX Business block. Prior to joining FBN, Sullivan served as an anchor for Bloomberg Television where he hosted the programs Morning Call and In Focus.
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