One might have thought that the recent American housing collapse would have united policymakers and analysts around the goal of getting the government as far away from Fannie Mae and Freddie Mac as possible. Then again, thinking that way would have ignored the critical role of politics in public policy. The latest Bloomberg Businessweek documents the fight over Fannie and Freddie’s future.
[B]oth Democrats and Republicans in Washington are set on liquidating Fannie Mae and Freddie Mac to avoid future bailouts. Senator Bob Corker, a Tennessee Republican, and Senator Mark Warner, a Virginia Democrat, are finishing work on a bill that would put them into receivership, which would probably leave little or nothing for shareholders. “There is a giant disconnect between investors and Washington over whether there is any value,” says Jaret Seiberg, an analyst at Guggenheim Securities.
Regulators didn’t anticipate a recovery when they seized Fannie Mae and Freddie Mac five years ago. The bailout includes no provision for the companies to repay the U.S. or become independent again. Lobbyists for hedge funds including Paulson & Co. and Perry Capital, which own preferred stock in Fannie and Freddie, are urging lawmakers to keep the companies alive. They arrive at meetings with detailed financial analyses contending that selling off the government’s shares and recapitalizing the companies could be more profitable for taxpayers than winding down the companies. Corker, who’s been in some of the meetings, says he’s been blunt. “I tell them it’s a lottery ticket at best,” he says. “I just don’t see any appetite in Congress for Fannie and Freddie ever being returned to the private market.”
Big financial companies aren’t the only ones agitating for a plan that would return profits to shareholders. Ralph Nader has been making the case that mom-and-pop investors who own the common stock also should reap a share of Fannie’s and Freddie’s record gains.
