Just because yesterday – Sunday – a group of hedge fund investors sued the US Treasury over dividends they want to get from mortgage-guarantee firms Fannie Mae and Freddie Mac. (And of course, since it was Sunday, there were no Treasury representatives immediately available to respond to the lawsuit. Which means the public is hearing only the investors’ side of the story, in all those thousands of stories about the lawsuit now running nationwide.)
And in today’s Boston Globe, there is a column by former NH Senator John E. Sununu arguing that Fannie Mae and Freddie Mac should be “retooled” – before the companies have the opportunity to “pay back the funds taxpayers sank into them” at the beginning of the Great Recession. (In case you’ve forgotten, we the taxpayers spent about $188 billion to bailout the two mortgage giants.)
The plan Sununu is endorsing wouldn’t actually eliminate government guarantees for the “retooled” and “reformed” new “Federal Mortgage Insurance Corporation”. No, no… the corporation would still have taxpayers as a financial backstop. But somehow, through the magic of federal legislation, “private financiers should have incentives to manage risk more effectively than in the past.”
Sunday court filings? Monday newspaper columns? Why on earth would anybody think there might possibly be a deliberate messaging campaign here?
Here’s MY short version of what’s at stake:
In the past several months, hedge funds have been quietly buying up shares in Fannie and Freddie. Those shares used to be basically worthless…. but their value is rising even as I type this post.
And for the past couple of months, hedge fund lobbyists have been quietly meeting with Congressional leaders to push “reform” efforts similar to the plan Sununu endorsed in the Globe today. Under current law, “Treasury holds $188.5 billion in senior preferred shares in the two companies, representing the amount of aid they have drawn from taxpayers to stay afloat. [As of April,] The companies have sent back $65.2 billion in dividends, which count as a return on the government’s investment and not as a repayment. Treasury also holds warrants to purchase nearly 80 percent of the companies’ outstanding common stock. “ But now that Fannie and Freddie are turning a profit, hedge fund lobbyists want to return the companies to private ownership.
That’s what’s at stake: billions of dollars in profits.
In all the stories I’ve read today, nobody is suggesting the private sector should assume all the risk inherent in the mortgage market. No, it seems they’re happy to have the federal government – we, the taxpayers – as the ultimate guarantor. In other words, the risk is “socialized”.
They just want the profits to be privatized.
And the way they phrase it, it all sounds so reasonable… if you’re too hot and tired to think twice about it… or if you’re relaxed and in a good mood from a July 4th vacation. And besides, the story broke on Sunday, with nobody around to give the other side.
As a professional communicator, myself, I gotta admire their timing and technique.
But as a member of the 99%, I am appalled at their insistence that profits should belong to hedge fund investors, rather than to the taxpayers who will continue to bear the investment risk.
Read “How do we get an economy that works for the 99%?” here.
Quote of the week:
“We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.” – Supreme Court Justice Louis Brandeis