By Olivia La Rosa -2008
We are now in the process of re-nationalizing two public corporations that were privatized long ago. These publicly-owned corporations began to be "securitized" in the mid-1970s. I was in banking then, and for the next twelve years. I saw it happen. Fannie Mae and Freddie Mac are a horrifying example of what happens when government functions are "privatized".
FM (short for Fannie Mae and Freddie Mac, which are short for Federal National Mortgage Association and Federal Home Loan Mortgage Corporation were formed to support the home mortgage market.
Fannie Mae was created in 1938, under President Franklin D. Roosevelt, at a time when millions of families could not become homeowners, or risked losing their homes, for lack of a consistent supply of mortgage funds across America.
In the mid-1970s, the character of these institutions changed because their charters changed. They were then in the beginning stages of privatization.
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When I entered the banking business in 1971, each bank branch kept its own home loans on the books at the branch where the home loan was made.
When I entered the banking business in 1971, each bank branch kept its own home loans on the books at the branch where the home loan was made.
Yes, you read that twice. I did not want you to skim over it (for you skimmers).
When I went to the bank, I saw the loan officer who made my home loan twice a week. He knew what I looked like, and what my husband did for a living. He knew when we were going to have a child. He saw me every time I came into the bank and made a deposit.
In other words, this person was, if not a friend, an intimate acquaintance.
Now, lenders are completely divorced from the human being who is taking out the mortgage. And investors are lured by fictitious entities like "mortgage-backed securities" and the people who made a mint by "securitizing" the family home loan obligation. Clever Wall Street minds figured out a way to "securitize" the mortgage markets. When you hear the world "securitize", just run like heck. Do not invest in securitized instruments. At their most basic, they are scams designed to wring excess profit from financial instruments that do not usually yield excess profit by bundling together individual items and assigning risk factors to the pool of items. Usually, the risk factors are understated and the potential profit is overstated.
Examples of securitized investments include junk bonds and derivatives, both of which led to devastating losses for families in the last two decades. Now, we are witness to the biggest failure of securitization yet, and it will cause us to have to turn Fannie Mae and Freddie Mac into public service institutions, which they should have been in the first place. Now, our grandchildren will be paying the bill for all those unrecoverable privatized profits.
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Before you read this, please take a moment to reflect upon what you thought that Fannie Mae and Freddie Mac meant before you read this article.
Freddie Mac Corporate Governance
We are committed to sound and effective corporate governance practices. We believe these practices are fundamental to maintaining a strong relationship with our stakeholders, reinforcing confidence in Freddie Mac's leadership, and achieving our mission to provide liquidity, stability and affordability to the U.S. housing and mortgage markets. We review and update our governance practices from time to time to be consistent with our shareholders’ best interests and with applicable requirements.
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