A White Paper Analysis of the Treasury Takeover of Fannie Mae

2
A White Paper Analysis of the Treasury Takeover of Fannie Mae
Fannie Mae
WHITEPAPERANALYSISOFTHE
TREASURY TAKEOVER OF FANNIE MAEPlay Quizzes 4

The U.S. Treasury has controlled Fannie Mae since 2008 through the Federal Housing
Finance Agency. Today Fannie Mae is a cash generating machine that sends billions of
dollars in quarterly dividends to the Treasury. These business-generated cash flows
provide the Treasury with monies to fund Congressional appropriations and delay the
harsh reality of asking Congress for an increase in the legal debt limit which is a
controversy in itself. Because of the terms of the takeover, Treasury can increase its
dividend payments by simply making a managerial decision to increase their investment
in Fannie Mae and thus increase its cash dividend payments.

Executive Summary: Fannie Mae was taken over by the U.S. Treasury on September 6, 2008. Such a complete takeover of a company with private stock ownership is an action that had never been taken by the Federal government before. It was a controversial move made at the time when financial markets were experiencing a panic. Yet, the question remains was this takeover necessary? This white paper reviews Fannie’s Mae financial statements to understand the financial viability of the company during the period from 2007 to 2014. A number of financial indicators and documents provide evidence that Fannie Mae was not in the dire straits reported as the justification for the takeover. It is likely that Fannie Mae could have survived the financial crisis without the intervention of the Treasury. The U.S. Treasury has controlled Fannie Mae since 2008 through the Federal Housing Finance Agency. Today Fannie Mae is a cash generating machine that sends billions of dollars in quarterly dividends to the Treasury. These business-generated cash flows provide the Treasury with monies to fund Congressional appropriations and delay the harsh reality of asking Congress for an increase in the legal debt limit which is a controversy in itself. Because of the terms of the takeover, Treasury can increase its dividend payments by simply making a managerial decision to increase their investment in Fannie Mae and thus increase its cash dividend payments. Without complete funding for appropriations, the Administration can use the cash dividends along with other available revenues to fund appropriations it deems the most important to its interests and concerns. The result is that not all appropriations passed by Congress will be equally funded. Thus, without complete funding, such as obtained with an increase in the debt limit, certain Congressional priorities wind up curtailed. The cash dividends from Fannie Mae help support this thwarting of Congressional actions.

How Value Investors Can Win With Tech And “Fallen” Growth Stocks

Valuation Present ValueMany value investors have given up on their strategy over the last 15 years amid concerns that value investing no longer worked. However, some made small adjustments to their strategy but remained value investors to the core. Now all of the value investors who held fast to their investment philosophy are being rewarded as value Read More

White-Paper_Treasury Fannie Mae FINAL

Updated on

No posts to display

2 COMMENTS

  1. Private mortgage insurance companies even paid out claims to Fannie and Freddie. That insurance was another reason why Fannie and Freddie were not in danger of becoming insolvent. With government in charge of the accounting, they could skew the numbers, pay off toxic loans that helped big banks and give the Treasury terms that gouged the GSE’s

  2. What your graphs say about H. Paulson ‘All I have to do is take these crap loans from the private sector and dump them on the GSE’s; the GSE’s are for me to poop on!!’

Comments are closed.