Tuesday, January 5, 2016


Fannie and Freddie have no more of an implicit government guarantee than does any other large corporation in America. All their mortgage securities very explicitly and clearly state that they are NOT securities of the United States of America and ARE NOT guaranteed by the US Government.

Where this idea of them carrying an "implicit" guarantee comes from, I haven't a clue. Unless it's tied to the "implicit" guarantee the US Government makes on all financial institutions and other large corporations based in America (namely, that the government is going to do its best to keep the US economy from entirely collapsing and the US Dollar from becoming totally worthless - so it's probably as safe or safer to invest in America and American-based institutions as it is anywhere else in the world).

In THAT sense, I guess you could say that Fannie and Freddie securities carry the "implicit" backing of the US government. But so do the securities of every other large corporation and "Systemically Important Financial Institution". And so did the automotive industry back in 2009, and AIG, and so on and so on and so on. If you are large and critical to the US economy, you carry an "implicit" guarantee from the US government. At least the company itself does, even if that guarantee doesn't extend to the individual investors and/or bondholders (which many learned the hard way in 2008/2009).

And with that being the case, I find it difficult to accept your argument that the Government is righfully entitled to as much as 95% of the profits of private corporations (whether publicly traded or not) because of that "implicit" guarantee. That boat might float in Russia or Venezuela, but it doesn't here in America. At least, I HOPE not!

In fact, it sounds remarkably Hillary-esque. I heard her argue that no corporation or company could exist or succeed if the government didn't first provide (or contribute to) roads, bridges, electricity, and other infrastructure. Using your (and her) argument, the government is entitled to 100% of EVERYTHING - less any amount they deem reasonable to share with the privately-built and owned corporations.

To me, that's just plain scary thinking!

1 comment:

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