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TheStreet Open House

The 5 Dumbest Things on Wall Street: Oct. 22

4. TARP Price Tag: Oh, Did We Not Mention Fannie and Freddie?

It seems like just yesterday -- well, maybe it was two weeks ago -- that the federal government was patting itself on the back for the success of the Troubled Asset Relief Program. The mother of all bailouts, and in particular the bailout of crash poster child AIG (AIG) was looking like it might cost the U.S. taxpayer a lot less than originally anticipated.

But while the Obama administration was busy praising TARP at its two-year anniversary party, critics were contending that taxpayers shouldn't forget about the bailout of Fannie Mae and Freddie Mac, conveniently not included as part of the TARP price tag. The critics were right.

On Thursday, the government announced that the estimate for the Fannie/Freddie bailout would more than double the original bailout package in the next three years, possibly as much as $215 billion. The worst-case scenario would mean that when all is said and done, Fannie and Freddie would have received $363 billion over three years. Even in the best-case scenario, the government projects forking over another $73 billion to Fannie and Freddie.

So much for the White House projection that losses from TARP would tally $50 billion, at most, down from a previously estimated $341 billion earlier this year. The stream of positively spun TARP news really began in May, with the government readying a sale of its Citigroup (C) stake and estimating at that time that the TARP price tag would go down by at least $11 billion (thank you, Citi). By May, the government was also saying that the AIG bailout estimated costs had been reduced by $3 billion, too.

Of course, Main Street will be angered by the latest Fannie/Freddie estimate, and they might siphon off any projected cost savings from TARP in the end. But putting the taxpayer bill aside for a moment, it's the bigger picture about the mortgage crisis that really aggravates.

Ever since the federal government decided to tout TARP, the news flow related to the housing crisis has taken a turn for the worse. The government jinxed itself, and Fannie and Freddie's never-ending need for the government handout is just the latest example of a mortgage crisis that won't release its grip on the U.S., or on the financial behemoths that were behind the crisis in the first place.

On Wednesday, the New York Federal Reserve teamed up with money management giants Pacific Investment Management Co., Blackrock (BLK), and (drum roll, please) Freddie Mac, in demanding that Bank of America (BAC) and Bank of New York Mellon (BK) buy back mortgage-linked loans that Bank of America mortgage lender Countrywide Financial failed to service properly.

Meanwhile, the National Association of Attorney Generals representing all 50 states is investigating suspect foreclosure practices at the big banks, leading Bank of America, JPMorgan Financial (JPM) and PNC Financial (PNC) to suspend foreclosure proceeding in at least some, if not all states.

Early next year the Obama administration is expected to propose replacing or reshaping Fannie and Freddie. That would be something to celebrate. And it's likely the news of the Fannie/Freddie bailout price tag going up will, before long, be offset by another rosy prediction about the TARP price tag going even lower still. Yet as the last two weeks in the mortgage crisis epic have shown, no single success in getting out of the mortgage mess means that the worst housing crisis in U.S. history won't rear its ugly head, again, and again.

TheStreet Says: Fannie and Freddie -- they're like the undead, except they eat money instead of brains.

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