On June 29^th, the S&P/Case-Schiller Home Price Index released a startling, but not totally unexpected tally of the magnitude of the Fannie Mae and Freddie Mac inevitable collapse. The news is not good and once again the American taxpayer will be needed to bailout the damage caused by the financial follies of 2006 – 2008.  This time, one of the largest beneficiaries will be the government of China and other foreign investors.

The Case-Shiller study divulged that Fannie and Freddie currently have $145 billion in housing losses, which are backed by the government/taxpayer.  That’s right.  The unwilling American taxpayer is on the line for these losses.  The Congressional Budget Office has said that the total losses are expected to eventually exceed $400 billion.  However, the Case Shiller report warns that the exposure could very realistically grow to $1 trillion.

The S&P and Case Shiller Home Price indices gauge the U.S. residential housing market by recording the value of residential real estate nationally as well as in 20 of the country’s largest metropolitan areas. 

How The Taxpayer Is Responsible

Even those taxpayers who do not own homes are standing behind the Fannie Mae and Freddie Mac obligations.  In fact, many of America’s unborn children are on the hook this time around.

When the U. S. government took over the troubled Fannie Mae and Freddie Mac agencies in 2008 during the Bush Administration, the agencies were already in dire financial straits.  Lenient lending practices had endangered many of America’s banks, many money-market funds and many foreign lenders.  Now, the U.S. government and its taxpayers were standing behind the debt.

Options

Robert Shiller, the Yale University professor who helped create the indices, said there are two painfully clear reactions by taxpayers.  The first is that they do not want to bear the burden for this debt.  The second is that Fannie Mae and Freddie Mac need complete overhauls.

Behind the scenes, the clock is ticking.  As incumbent after incumbent begins to retire or withdraw from public life, it makes on wonder what they know but do not wan to discuss with taxpayers about the eventual outcome.

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