Freddie and Fannie are in trouble and no it’s not anyone’s favorite soap opera, although that might be closer to the truth than everyone involved would like to admit but let’s get to the heart of the matter. What are Freddie Mac and Fannie Mae? Well, the Federal National Mortgage Association, nicknamed Fannie Mae, and the Federal Home Mortgage Corporation, nicknamed Freddie Mac, have operated since 1968 as government sponsored enterprises (GSEs). This means that, although the two companies are privately owned and operated by shareholders, they are protected financially by the support of the Federal Government.

These government protections include access to a line of credit through the U.S. Treasury, exemption from state and local income taxes and exemption from the Securities Exchange Commission’s oversight panel.

Fannie Mae was created in 1938 as part of Franklin Delano Roosevelt's New Deal. The collapse of the national housing market in the wake of the Great Depression was the root cause for creating a GSE that basically operated like a national savings and loan, allowing local banks to charge low interest rates on mortgages for the benefit of home buyers, which eventually led to the development of what is now known as the secondary mortgage market.

Within this secondary mortgage market, companies like Fannie Mae are able to borrow money from foreign investors at low interest rates because of the financial support that they receive from the U.S. Government and it’s this ability to borrow at low rates that allows Fannie Mae to provide fixed interest rate mortgages with low down payments to home buyers because they make their profit from the difference between the interest rates homeowners pay and foreign lenders charge.

If both GSE’s went out of business today who would fund mortgage demand in this nation? Ahah and, yes, therein lies our BIG PROBLEM! Maybe the three who already have a market share of well over 50% of the market might: Wells Fargo, JPMorgan Chase and B.O.A. but then where would all those Fannie & Freddie originated loans reside?

On the big three’s balance sheets or would they turn around and securitize residential loans? Ah, but they couldn’t because there would no longer be a private-label MBS market anymore.

Well, under a plan originated by Senator Chris Dodd and Rep. Barney Frank, private-label funders will have to retain a 10% risk piece on all new securitizations, which might just be a good idea, although you'd probably drive away all the Wall Street vultures.

Look, the truth is that if Fannie and Freddie go away it would be almost impossible to replace them because, for one thing, together, they bought $400 billion in alt-A and subprime loans/securities without paying much attention to the credit quality and now we have to fix this problem. Who sold this junk is, of course, an easy answer: the geniuses on Wall Street: Bear or Lehman or any of the others players and, as to why this wasn’t public domain knowledge, it was because these guys spent billions on lobbying and political donations to keep it quiet and, as long as they are allowed to lobby government officials and regulators we, the tax payer, is going to be on the hook for the money.

Fannie and Freddie are gigantic savings and loan institutions that hold liabilities and assets but instead of using depositors money they tap the capital money markets using both short-and long-term debt. Most of their assets aren't whole loans, but mortgage-securities backed by residential whole loans and they currently together have $1.6 trillion of on-balance sheet assets and off-balance sheet guarantees of $3.6 trillion for a total of $5.2 trillion and even though they both operate under federal conservator-ships; they get their funds from Uncle Timmy Geithner and presently have a debt-load, as you see above, of $5.2 trillion.

Now, one question, how we gonna turn around this economy with a 5.2 trillion debt-load?

Here, I will offer my own answer: Live by the golden rule: “Do unto others as you would have them do unto you.” No, Timmy, not just to Wall Street but everybody, as in every foreclosed home-owner and every behind in his payments credit-card debt-holder. These debt-holders (think banks with TARP funds here) have no consciences and they charge interest rates (think credit-card and insurance companies here) that would make the Mafia blanch.

Oh, sound too radical huh? So, you mean we can give billions (maybe trillions) of taxpayer money to mirthless, cold, calculating, heartless bankers and insurance maggots but nothing to the taxpayer himself? Take a look around any city or county in this State or any other State in the U.S.A. and you will see abandoned homes, cars being repossessed, working-class people standing in long lines for food and medical care and who we can’t HELP THEM but the bankers and insurance maggots ARE TOO BIG TO FAIL! Gimme a break.

May our friends respect us, trouble neglect us, angels protect us and heaven accept us.