It’s better late than never. Now that a government takeover of government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac has been declared “inevitable,” the media are beginning to realize the GSEs were a bad idea to begin with.
The [1]August 18 issue of Barron’s warned of “inevitable government recapitalization” of Fannie Mae (NYSE: [2]FNM) and and Freddie Mac (NYSE: [3]FRE). The mortgage giants have been suffering in the housing crisis after years of mismanagement.
Jonathan R. Laing concluded in the Barron’s report that “whether Fannie and Freddie are liquidated or nationalized as a prelude to privatization, in their current form they won’t be missed.”
Freddie Mac has dropped around $2 per share since August 18. Fannie Mae has dropped $3.50. The significant losses have garnered attention from the financial media and led CNBC “Mad Money” host Jim Cramer to slam the government for not regulating the GSEs enough.
“Stop trading these two stocks,” Cramer said in an interview with CNBC Managing Editor Tyler Mathisen on “Closing Bell” August 20. “This is an outrage – 200 million shares of each were trading today. It’s very clear that someone knows what’s happening. Now one of the things we’re supposed to have, you know, we have this organization called the SEC. It was really fabulous – and I have to be facetious because it’s just too unbelievable. The New York Stock Exchange, another organization. The companies themselves – they used to stop trading when it was clear that there were some people who knew what was going on and others don’t.”
“There’s not cop on the beat anymore,” Cramer complained. “There isn’t anyone who just says, ‘Wait a second, this is outrageous.’”
The network’s “loose-cannon” launched into a rant about the failure of the government to prevent the mismanagement of the GSEs. He told Mathisen the market couldn’t be trusted to sort out the problem by allowing Fannie and Freddie to fail without government intervention.
“It’s never been like that,” Cramer said. “Go back to 1929 then. Let’s just have a free-fire zone for everybody other than the ultra-rich. Let’s drive everybody out and make this into the club that is Piping Rock … the club that is just a bunch of rich people sitting around and saying, ‘Haha – look at those chumps.’ I know what Paulson’s saying.”
“This is an outrageous moment and I am just aghast that the SEC, the New York Stock Exchange, Fannie Mae, Freddie Mac, anybody in charge, Justice Department – come on,” Cramer said.
A [4]July 28 Business & Media Institute report showed how the mainstream television media missed the potential danger for Fannie Mae and Freddie Mac, despite pleas dating back to 2004 by some financial journalists.
The Business & Media Institute warned about problems at Fannie Mae in 2005. It pointed out in a Special Report, “ [5]Government-Sponsored Enron,“ that print outlets had done a good covering its mismanagement while broadcast networks virtually ignored it.