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Fannie and Freddie: Making Bank Bailouts Look Cheap

Updated to include information about Fannie Mae's first-quarter results, which were reported this morning, and AIG's results, which were reported on Friday.

NEW YORK ( TheStreet) - According to the formula for taxpayer rage -- big bailout + housing + rich executives + lack of humility = angry -- it's puzzling that Fannie Mae (FNM) and Freddie Mac (FRE) have largely escaped Average Joe's wrath.

The two firms are emblematic of everything that went wrong with the financial system, and of what seems to be making taxpayers so mad. Fannie and Freddie have been kept alive by the largest taxpayer-financed bailout to date, and now have the luxury of a blank check from the Treasury Department. Their housing-related losses continue unabated, with Fannie Mae saying on Monday that it needed another $8.6 billion in taxpayer support, and Freddie Mac having requested another $10.6 billion last week to keep its balance sheet in tact.
Fannie Mae and Freddie Mac vs. Big Banks

They're also at the center of the housing crisis. If you own a home, there's a good chance you've interacted with Fannie and Freddie indirectly; they own or insure more than three-quarters of the U.S. housing market. The mortgage-backed securities they create with those loans are repackaged and traded and bet upon by investors. In some sense, they're where the alphabet soup of Wall Street products that have confounded the average citizen -- the RMBS, CDS, CDOs and the like -- all began.

And while executive pay at Fannie and Freddie has become a lot more rational since the firms were taken over by Uncle Sam, their top guns were getting paid quite a bit at the height of the housing frenzy. The CEOs of Fannie and Freddie brought home roughly $60 million combined in 2006 and 2007, just before the punchbowl was yanked away. And even last year, as losses continued to pile up, their top executives received $13.4 million in pay.

Investors, too, have profited on the backs of subprime suffering, via Fannie and Freddie shares. Their returns beat the S&P 500 index by a wide margin, starting in the early 1990s, straight through most of 2007. Short bettors won handsomely as Fannie and Freddie's market caps plunged tens of billions of dollars in 2008, and their penny-stock volatility has given day traders a reason to smile.

So, what gives? Why isn't anyone angry at - or even talking about - the absurdly large liability that Fannie and Freddie represent to the American taxpayer?
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