Fed quietly moves to nationalize FNM, FRE debt

Here’s an interesting commentary on how the FED is allowing highly leveraged trades of Fannie Mae & Freddie Mac bonds for hard cash from the Federal Reserve, as long as you happen to be an institution (bank) with access to the Fed’s Term Auction Facility.

The article argues that in the end, when Fannie & Freddie ultimately fail, the Treasury will absorb the bond losses by issuing more debt (taxpayer burden). Profits get privatized, losses are socialized & we get royally screwed.

Meanwhile, uh-oh, we are only at the beginning of a long wave of bank failures and the FDIC is already saying that they may have to borrow from the Federal Treasury to cover insured depositors. This doesn’t inspire a lot of confidence [cringe].