Here is a video segment by Yahoo Tech Ticker featuring Barry Ritholtz, whom I am a big fan, where a theory is discussed about a backdoor bailout of the banks. It deals with Fannie Mae and Freddie Mac. Both of these organizations are losing billions every quarter, and we, the taxpayers, are acting as an unlimited ATM for those institutions.
You may wonder why this is a bailout for the big banks. Well, Fannie and Freddie are the largest buyers of mortgages in the U.S. In fact, 96.5% of all mortgages issued in the first quarter of 2010 are owned by the dynamic duo. This means only 3.5% are controlled by non-government entities for those like me who struggle with second grade math.
What has been happening is the banks have been able to offload their mortgages that smell like my high school football locker onto Freddie and Fannie’s balance sheet. As these mortgages implode, the taxpayer picks up the tab, rather than the banks. The banks make out like bandits. They sell the toxic mortgages for full price even though they wouldn’t fetch that price in the free market. Then they get to charge Fannie and Freddie a fee to collect the mortgage payment (or process the foreclosure as the case tends to be). For new mortgages, they also get to charge a processing fee or loan origination fee. Mo’ money, mo’ money, mo’.
Anyway, it is nice to see some guys smarter than me say the same thing about the banks getting a backdoor bailout. We should be furious about this, but there is a special on TV about the divorce of Jon and Kate that I want to watch first.
I still believe the best way to hand the banks what they deserve is by moving your money to a local community bank. Please see my Move Your Money post.