If you have read the news in the past few weeks, you may have noticed the names come up. I was interested in their history, so I looked it up. I was most surprised to find that they were both the result of government intervention. Fannie Mae came first, her old name was the Federal National Mortgage Association and she was a government agency from 1938 to 1968. Created in 1938 as part of Franklin Delano Roosevelt’s New Deal, her job was to counter the growing reluctance in the country for private lenders to invest in home loans. The way she did that was to provide local banks with federal money to finance home mortgages, thereby increasing the availability of affordable housing. The end of its former relationship with the US Government came in 1968 when Lyndon B Johnson took it off the Federal payroll to lessen its effect on the national deficit. So for two more years it was a veritable monopoly on the mortgage finance market.
It is for that reason that in 1970 the US Government sanctioned a new member, Freddie Mac (Federal Home Loan Mortgage Corporation) , to join the circus. According to current statistics, current assets of these two companies combine for a total that is 45 percent greater than that of the nation’s largest bank. The funny thing is their combined debt is equal to 46 percent of the current national debt. If you are a shareholder, Fannie Mae and Freddie Mac are the only two Fortune 500 companies that are not required to inform the public about any financial difficulties that they may be having. The sad thing is, U.S. taxpayers could be held responsible for hundreds of billions of dollars in outstanding debts.
It is for this reason that as of late the question has come up whether to federalize these two corporations, and bring it under control at the expense of the federal budget, or to let the free market and the implied safety provided by the US government keep them alive. Either way, they won’t be allowed to collapse.