President Obama Didn't Mention That the Losses Incurred by Fannie and Freddie Were Profits for the Banks

It is always best to be careful in pointing items not mentioned by the President or any other political figure. (it's a long list.) In the context of discussing President Obama's plan to impose a tax on the country's largest banks, the Washington Post told readers that, "he did not mention that the biggest banks had paid back their bailout money, often with the government reaping a profit, although that has not been the case with the large insurer AIG or the auto companies."

This is one of the pieces of information that President Obama did not share with his audience. He also did not share the fact that Fannie Mae and Freddie Mac have already lost more than $100 billion. These losses result from buying mortgages from banks for an amount that exceeds their value. In effect, Fannie and Freddie's losses are the banks' profits since they prevented the banks from having to incur these losses. On the night before Christmas the Obama administration removed the $200 billion cap on losses that both Fannie and Freddie could cover with money from the Treasury, so there could be much larger losses in the future from paying too much to banks for mortgages.

President Obama also didn't mention that his program for helping homeowners also helps banks by allowing them to collect much more money on bad mortgages than would be possible if the government did not get involved. This another piece of information that could have been mentioned in this article.

And, neither President nor the article pointed out that the losses incurred by AIG were largely due to payments made to large banks like Goldman Sachs. If the government had allowed AIG to go bankrupt, then these banks would not have received the money they were owed by AIG.

--Dean Baker

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