A Kick in the Fannie Mae?

[Conservative] attacks on [the legacy of President Franklin Roosevelt] share one major goal: To privatize what is left of the New Deal and undermine its programs to help the poor and unlucky of the United States navigate their way into the middle class.

The Federal National Mortgage Association (FNMA), more commonly known by its portmanteau nickname Fannie Mae, is one such government entity created by the New Deal, initially to inject liquidity -- or cold, hard cash -- into the mortgage market. That is, until 1968, when it was converted into a private corporation that ceased to guarantee loans made by the government. Since then, it has existed in a nebulous state otherwise known as a government-sponsored entity (GSE), like its smaller GSE-in-arms Freddie Mac, which also buys and pools loans on the secondary market to package them into mortgage-backed securities for sale to investors on the open market. Even though Fannie and Freddie receive no direct funding or backing by the government, the loans that they securitize have the implicit support of the U.S. government behind them, thereby making it easier to land favorable lending rates, buy prices and what passes for financial security in the capital and mortgage markets.

And if that sounds like a bureaucratic labyrinth to you, that's because it's supposed to. Good luck navigating it. But the tangled acronyms and economic jargon still cannot hide one major problem: The GSEs are neck-deep in the housing meltdown and sinking fast.

As of last report, Fannie and Freddie were holding upwards of $4.8 trillion in mortgage-backed securities, financial instruments at the dark heart of our current housing crisis. And because many of those securities are built up of nothing more than debt, one could argue that they're holding onto a whole lot of nothing at all. Which, of course, is the realization that the markets came to over the last several months, when mortgage-backed securities collapsed like a house of cards, taking the American economy, and others it supports, down the rabbit hole.