First principles or principles at last?

The Wall Street Journal‘s latest headline is “Fannie Mae Loss Balloons; Says Needs Treasury For Survival”. Obviously. But not so obviously, who does Treasury need for survival? Choose one from the multiple choice selection below.

1. The taxpayer;
2. The printing press;
3. None of the above.

The story, sourced from the Dow Jones New Wire said:

Fannie Mae (FNM) posted a sharply wider second-quarter loss on $18.8 billion of credit-related impacts as delinquencies continued to surge and the company admitted it is reliant on the government’s help to stay in business.

The mortgage financier, placed under conservatorship in September to prevent its potential implosion, requested another $10.7 billion of aid as part of the $200 billion package extended to Fannie. It has received $34.2 billion so far.

“Due to current trends in the housing and financial markets, we expect to have a net worth deficit in future periods, and therefore will be required to obtain additional funding from Treasury,” said Fannie in its quarterly report, filed late Thursday with the Securities and Exchange Commission. “As a result, we are dependent on the continued support of Treasury in order to continue operating our business.”

I think the correct answer is number 3. None of the above. Treasury needs to redefine the problem of Fannie Mae, not simply ask for more tax dollars or print more money. Maybe Fannie Mae is part of the problem and writing it a bigger check doesn’t really help. That would put a wholly different construction on the headline.

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