The government agreed to keep Fannie and Freddie afloat four years ago
through a complex arrangement where the Treasury injects capital into
the firms as needed every quarter to keep them afloat, and it receives
preferred shares in exchange. Those shares pay a 10% dividend.
Well there you have it. It starts out pretty good, except for the 10% dividend. Why 10% when the common folk only gets maybe 2% interest. Okay, I know, because it was a risky loan. I mean, it is a government agency, US Treasury Department, bailing out Freddie and Fannie who are other government directed agencies.
But the arrangement wasn’t expected to last this long. Congress and the
Obama administration have taken few steps towards advancing any
overhaul. That has led to perverse outcomes like the one currently
facing the companies: Even if they’re profitable, there’s no mechanism
for them to pay off the government–and they may continue to borrow money
simply to pay those dividends.
Look at that section highlighted in red. Read it again and let it sink in until the light bulb comes on over your head. Yep, I see the lights on...you have figured it out. They may have to continue to borrow money just to pay the dividends. Now you might have thought, "well the economy has tanked further than anyone expected, so they may have to wait for the housing industry rebounds before profits return enough to pay those dividends". That is until you read this:
Fannie currently has to pay $12 billion in dividends every year. That’s more than the company has ever earned in one year.
Wow, more than they have ever earned in one year! Again, where were the PhD's and Accountants that are paid to figure these things out BEFORE they sign the contract. Anyone involved with approving this contract should be fired.
In 2009, the Treasury Department said it would provide unlimited help
for three years. But beginning in January, the companies once again will
have a fixed amount of money available from the Treasury: $125 billion
for Fannie and $150 billion for Freddie.
Really, did they not learn the first time? Insanity Gone Wild I tell you. We peasants should be outraged as this is our money they play with. These actions cannot be sustained. The house of cards will collapse.
Well
