Imagine the following:
You own a family business that has been around since 1938, respected, even loved. You eventually took a product that was inaccessible to millions of Americans and made it affordable. You were even one of the companies highlighted in Jim Collin’s bestselling must-read business book Good to Great as an example of a great business. People love your business so much, that the government starts subsidizing it, and asking you to make and do more! Regardless of the wisdom, you are happy for the vote of confidence, and do just that.
But then those very policies get you in trouble during a market downturn. Things get dicey. You’ve knuckled down to get ready for the storm, when you hear a knock at your door. It’s the government, who still loves you and wants to give you a loan. In fact, they insist, muttering something about “a shame if something should happen”. The terms are strict – they want 80% of your business and 10% dividends, but that is better than going bankrupt, right?
You’re literally forced to take the loan, but the market crash isn’t as bad as you expected. In fact, you probably didn’t even need the loan! In just a couple years, you are back to making record profits. A few years later, you have completely paid off the loan.
Except the government changed the loan, without your consent. Instead of owing the government 10%, you owe them all of your profits, forever. Every dime you make goes to the government. When you complain, they note that your business might not even be around if it hadn’t been for their interference, and that you therefore owe the government a life debt. Like a wookie. The government has become the de facto owner of 100% of your company.
You appeal in court, noting that the U S Constitution’s Fourth Amendment prohibits the government from taking your property – in this case, your company – without just compensation. But the judge rules against you, saying that it is still your company, you just have a contract you never signed promising to give away all your profits to Uncle Sam. So there is nothing they can do.
You would think, if this were happening in America, someone would care, right?
Nobody does.
The company, of course, is Fannie Mae and Freddie Mac, two ostensibly private companies. Both were forced to take bailout money by US Treasury Secretary Hank Paulson during the 2008 crises, a bailout they may not have even needed. The Government then created the Federal Housing Finance Agency with no other purpose than to run the two mortgage giants. The final coup de grâce came in 2012, when the government unilaterally decided to change the terms of the bailout, so that both companies could never get out of conservatorship, the new name for those businesses that have become unwilling wards of the state, even while both are earning record profits.
What are happening to those profits? They are padding the coffers of the US Treasury, being spent on bureaucratic pet projects and even counted as income for the Treasury, making the country’s deficits look smaller than they are. Meanwhile, the $5 Trillion in debt both companies have are not being counted toward the US debt because, well, $18 Trillion in debt looks a tiny bit better than $23 Trillion in debt.
Who are the owners of Fannie Mae and Freddie Mac that are getting screwed?
Probably you.
Fannie Mae and Freddie Mac were favorite investments for American pension plans, prior to the 2008 crash. The stock fell from $60+ to about $0.30, and most investors fled. Now, opportunistic investors have charged in hoping to win a legal battle where the profit motive and protecting the American Way happen to share a common enemy in the big, bad Government.
Because Fannie Mae’s name was tainted in the 2008 crash, nobody seems to care that the government has literally stolen the most profitable company in America.
They should. Because this shouldn’t be happening in America.