Too Big to Fail, The Sequel

Share with: Everybody. Sharing is caring, ya know.


by Pete the Banker
CNBC in it article “4 Big Mortgage Backers Swim In Ocean of Debt” (HERE) suggests that the following four firms have been deemed Too Big Too Fail: Fannie Mae, Freddie Mac, AIG and GMAC.  They are all drowning in massive debt and operating at significant losses .   Isn’t it time for Senator Sanders, Secretary Geithner, and the Congressional Democrats to prove their concern over their claim that some firms are Too Big Too Fail and consequently are a threat to the economy?
A year after failure Fannie Mae’s (HERE) accumulated losses are expected to climb to over
Congress will have to increase maximum limit of capital that the Treasury is allowed to fund to the GSEs.  In order to do so, Congress and the Administration will have to accept an increase the capital infusion limit originally approved by Congress under the Conservatorship.  This is a dilemma for the Treasury and the Administration not only politically but also since in exchange for the first $200 Billion for Fannie and Freddie the Federal Government received perferred stock in both firms.  And the value of the remaining “equity” in these firms available to provide additional security for the Governments (taxpayers) additional funding is substantially less than the preferred stock value originally pledged under the agreement last year?$200 Billion by next year requiring it to draw additional funds as capital from the Federal Government over and above their original commitment under the Conservatorship agreement  
AIG similarly was provided some $180+ Billion in Federal Aid much of which will never be recovered (HERE).    Yet, the Federal Government will reduce the existing legal obligation of AIG from it’s current $40 Billion to less than $20 Billion when AIG sells its profitable Insurance Company subsidiaries to the Federal Government in excahnge for the debt reduction,  And yet operationally, AIG continues to leach red ink and once it sells its most profitable subsidiaries it will likely show even larger losses.
GMAC, now under minority ownership by GM (the majority owner is now Cerberus), similarly is drowning in debt and red ink.   The Government feels GMAC is crucial to the success of GM’s and Chrysler’s revival (perhaps subsidized interest rates), and as a result the Federal government has invested funds in excess of $12.5 Billion and is considering an additional $5.5 Billion by the end of the year.   
All of above firms are demonstratively failed enterprises, of substantial size and all  easily qualifying as candidates for Too Big Too Fail, as defined by Senator Sanders, Treasury Secretary Geithner and the Administration.  These are firms that need to be pared back or eliminated since they are of a substantial size (“Too Big Too Fail”) and have demonstrated an incompetent operational history. 
Isn’t it time for the Democrats and the Administration to live up to their rhetoric concerning mitigating those firms Too Big Too Fail by discontinuing their financial support of these four failed firms?  Isn’t it time for Democrats to lead by example and quit spending taxpayer funds to support large financial firms who where instrumental in the collaspse of the capital markers and who have demonstrated that they are incapable of operating successfully and independently?

Tell ’em where you saw it. Http://www.victoriataft.com

Share with: Everybody. Sharing is caring, ya know.