The Federal Fiduciary

If you were ever interested in reading an intriguing story of deceit, deception, government persuasion, and all of the above’s ramifications on society… this is what you should be reading about EVERY day! No fictitious story can compete with this one. The Federal Fiduciary is the story of Fannie Mae and the government’s role as a fiduciary to taxpayers and foreign debtors.

If you haven’t been reading the story so far, for example if you’ve been under a rock since 2004, let me recap…

Put on your story cap for a second and follow me down the tunnel. The Federal Government backs a couple of private home loan banks and encourages lending out non-government money so that a higher percentage of society can own homes. The banks of course need to sort out the details of how they’ll make money as that is not the governments problem. The banks figure it out and begin to rake in the dough, lending at a rapid pace and taking on as much risk as they can. Every time the look to the government they get reassured that they have government backing. The story climaxes when the whole thing blows up and all that risk gets the banks in trouble. The government has to take over the banks as they promised and figure out what to do with them. Now the story gets interesting and the plot twists really start to take hold. The banks that the government took over start to make tons of money again. This time without the risk – they liquidate the bad assets and lend on good assets. The banks begin to report great news to the people they are lending to and society in general (watch the YouTube video)…

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Some private investors who had been reading the story since the beginning see the change in the banks behavior and wonder if there isn’t a huge opportunity here to buy into a bank that the public has dismissed (due to the story up until now). They begin investing and digging deeper into the business and where the potential value is in the business. They even begin to invite other investors to make similar investments and publish as much of the data as they can about the huge value inside of these banks that the government is hiding (read through the Fairholm research)

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Now wait, the government couldn’t be hiding the value? Could they? Are they embarrassed over the whole thing, trying to recover taxpayer dollars by playing the market, just ignorant about the value, or is there some other motive. As the investors begin to inquire to the motives, the plot gets deeper. The requests are public through the court system and the courts ask the government to comply. The government tells the courts that they can’t really say anything because they don’t really know anything. The courts of course agree with the government and tell the investors to just sit around and wait because no one is being harmed while the government holds these banks that are continuing to grow in value (read the Fairholme-Filing-9-10 & the Federal-claims-Govt-response).

So where does the plot go from here, does the government win and score a huge profit in the stock market for taxpayers, does the investor win and take the government out of the business of investing taxpayer money. Stay tuned!

UPDATED!!

This just came out (9/18), the court actually denied the government’s request to put off Fairholme (the investor if you didn’t follow the story)! – nice work from the court system! Now that they have to respond to the case and this story may unfold faster than a snails pace. Thanks Todd for posting!