This must be real, because it’s just too absurd for fiction.  Fannie and Freddie, the giant enterprises, formerly quasi-private and now wholly-owned by the US Treasury, presently funding roughly three-fourths of all domestic residential real estate mortgages, are receiving subsidies from the Treasury in order to pay dividends.  To the Treasury.

In an article in the Wall Street Journal, the money carousel is explained:

For the first time since the financial crisis, Fannie Mae and Freddie Mac are showing glimmers of profitability. But the two mortgage behemoths still ask the Treasury Department every quarter for billions of dollars in cash, most of it going right back out the door to pay dividends to the same U.S. agency.

The requirement that both companies pay a 10% dividend on preferred shares—which the U.S. government receives for its infusions after taking over Fannie and Freddie in 2008—costs them about $15 billion a year at the current rate. In the last two quarters, the firms have paid $7.5 billion in total dividend payments, while receiving injections of $5.7 billion to help keep them in business.

Incredibly, the Treasury justifies this silliness by claiming that they are doing it to repay the taxpayers:

U.S. officials have said those payments are an appropriate way to repay taxpayers.

Seriously, I couldn’t make this up if I tried.

Do these unnamed U.S. officials have any idea from where it is that the US Treasury gets its funds to lend to the former GSE’s so that they can pay dividends to the US Treasury?  The thing about representative democracies is that of all the entities present and accounted for during negotiations about policy, the taxpayers are routinely left out.  Of course the US taxpayer is funding the Treasury that is funding the GSE’s.  The Treasury collects taxes or issues debt (future taxation) to subsidize the GSE’s, then takes a goodly portion of it back as dividends, making it appear that its “investment” in itself (the GSE’s are functionally now just US government agencies) is profitable.  Now I see how the “investments” in GM, GMAC (now Ally), AIG, et al, are turning such a great profit for the taxpayers.  

What the ongoing subsidy to the housing market by the US Treasury represents is little more than a transfer payment from those without residential real estate mortgages to those that have them.  Since the majority of people use mortgages to buy their homes, it represents a transfer payment from the minority that don’t (including non-homeowning entities like corporations and renters) to a majority that do.  If this represents the best of democracy in action, it is little wonder that Plato and Aristotle abhorred it in ancient Athens.

That US officials apparently believe this money carousel represents anything more than, well,  a money carousel, and are willing to publicly pretend that it is something else shows that the human capacity for rationalization knows no bounds.   In a closed system, such as the space in which the Treasury and the GSE’s coexist, it makes no difference under which account the matter and energy of the system is placed.  What matters is additions and deletions to the system, and the only entity making any additions to the Treasury/GSE system is the US taxpayer.

The way to make the GSE’s profitable for the taxpayers is to end the subsidies now, and decrease tax rates accordingly–a virtual impossibility since doing so would also eliminate the residential mortgage subsidy to the majority of homeowners with a mortgage.  Instead, those benefiting from the subsidy will howl that the subsidies represent taxpayer profits, which is precisely why US officials make their absurd claims–to win the political argument.  Political arguments are never about discovering truth.  Instead, they are about which side can most effectively obscure truth such that its side wins. 

A Fannie Mae/Freddie Mac funded mortgage represents a Byzantine shuffling of money whose only purpose is obscuring the truth.

Advertisements