Fannie Mae & Freddie Mac are big - you just won't believe how vastly, hugely mind-bogglingly big

 

AD: Here's the big idea. In the thirties, the US government said, "boy, we really wish more people owned homes, but the market isn't pricing homes and pricing mortgages cheap enough for enough people to buy them. And so, we want -- we don't want just a free market, we want to intervene. We want to change the way things work so that more people can own homes, because that's good for America." And so, effectively what they did is they created this private company and in the fifties they created a second private company -- that's Freddie Mac -- to act as competition to encourage more home ownership. And what the government gave those two organizations is an implied promise -- a wink, a nod -- saying to the rest of the marketplace "trust these guys, we're behind them". It wasn't an explicit thing, like "the full faith & credit of the United States", like an actual US government agency, but it was implied. It was suggested. It was widely known. That allowed Fannie Mae and Freddie Mac to create a situation where there would be cheaper mortgages so poorer people, basically, or higher risk people could afford them. More people own homes. Good for America. That was the idea.

NC: And it seemed to work perfectly well for a long time.

Zaphod Beeblebrox

AD: Well.... it depends who you ask, but yeah. Yeah. I mean, we haven't had a crisis until the last few months, that's for sure. I think where people have been very unhappy is that Fannie May and Freddie Mac did not just directly issue loans. They were basically, you could think of them as mortgage wholesalers who provided the financing for private banks to issue mortgages. Basically, what Fannie Mae and Freddie Mac did was, they didn't just get loans for the poorest people or the highest risk people, or the people who couldn't afford homes. They arranged for homes for a lot of people, more half the homes in America. They became so big, I am pretty sure, and I checked this with a bunch of people today, they are the largest companies ever in history of the world by a long shot. In fact, together, they are...

NC: Wait wait, go back, one more time. "The largest companies in the history of the world by a long shot" and nobody noticed?

AD: Yeah, isn't that weird? I mean, I've been covering this, and I didn't quite click with that fact until today. I was talking to some treasury officials and I was like "wait a sec, so what you're saying is that they're the biggest companies ever." And they said, "more than that, they are bigger" -- now I'm talking about their debt, the amount of bonds that they have issued -- "is more than any country ever, except for the United States." Now one guy said maybe if you did the exchange rate right, the East India Trading Company might have been bigger possibly...

NC: Back in the day, yes.

AD: ...in modern times. Yeah, back in the day. These are -- let's put it this way. They are bigger than Japan. Their debt is bigger than the UK. Bigger than China. These are monstrous, huge organizations. And basically, the US has allowed them to grow that big, and we can get into the details, but basically encouraged them to act like a hedge fund. To act like crazy, risk-taking, profit-hungry folks. Because that's the crazy thing about Fannie Mae and Freddie Mac, they have this dual -- they're like "platypus organizations". They have these dual roles. They're supposed to help these poor Americans get homes, and they're supposed to take profit for their shareholders. And they've done -- were doing really well by their shareholders and focused on that. Well, but yeah, that dual role reached a crisis point this week, and is now over.

Got that? Bigger than any other company in the history of the world. Bigger than China. Bigger than any nation other than the United States itself. 

And they just got nationalized.