Freddie and Fannie's bender adventure

OK, I’ll admit that I’m not a very smart person. I don’t really understand the securitization process and rates of return. Think about the relationship between price sensitivity and changes in interest rates; I mean, you can’t explain that.

But I do have the Internet and a stiff grasp on logic.

That said, let me kick it with you straight about mortgages.

Recently there have been discussions about what to do with Freddie Mac and Fannie Mae. Freddie and Fannie are government-sponsored enterprises that used to make Bill Gates money on the secondary market for mortgage-backed securities. When Freddie and Fannie first got started securitizing mortgages, they preferred only the highest quality. About a decade ago, they came upon a huge stockpile of beer-in-a-can-quality mortgages and went on a bender.

So think about the U.S. government as Freddie and Fannie’s long-term AA sponsor. For decades they were working great together. Freddie and Fannie were able to make some great deals, knowing that if they were to really screw it up Congress would be there to write them a check.

Maybe a little crying on the president’s shoulder and some ice cream afterwards, I don’t really know. Having a contingency plan gave them some confidence.

Then, as I mentioned above, Freddie and Fannie must have gotten invited to too many case races, because once they developed a taste for bad mortgages, they had a catastrophic gotta have it-sized Chocolate Lava Meltdown.

A few years ago Freddie and Fannie woke up on Wall Street half naked next to a bunch of their friends in the banking industry with a pounding headache and a huge bill.

Their first reaction was to call the president and tell him about their rough night. There were crazy expensive mortgages and some credit default swaps. Charlie Sheen was there just winning all over the place, or maybe it was just his dad. Either way it was pretty outrageous.

Then they said, “Oh yeah, and can we have a few hundred billion dollars? They say our liabilities outweigh our assets. Ain’t that some shit?”

Or something along those lines.

Anyway they got their check at the expense of the American people. Now the people are angry because of the debt and some economic crisis. I’d be pissed too.

Freddie and Fannie obviously used us for our sympathy money. Let them find another government sponsor. I hear there are some PIIGS out there who are into some poorly thought-out investing.

­— nicjacob@indiana.edu