There is an additional substantive problem with Fannie and Freddie.
They are no longer controlled by independent shareholders. They are completely controlled by the Federal government and are acting as its agents and instrumentalities. Despite the formality of a conservatorship, there is no conceivable state of affairs where they can regain their solvency or independence.
Under any system of accounting rules, where one entity is completely owned and controlled by another, the owner must show the subsidiary’s obligations on the owner’s balance sheet as the owners liabilities.
The US government has not done this with F&F. Their more than T$5 of obligations must be added to the US Governments outstanding debts of T$12. The result is a an increase in national debt of about 40% of GDP, which kicks us well over 100% of GDP.
The PIGS countries welcome us to the club.
