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Fannie Mae and Freddie Mac, a $5.2 Trillion Bankruptcy Posted 2 years, 1 calendar month ago (Sunday, August 3rd, 2008 at 4:32 pm) by jwsmith By J.W. Smith When established in the 1930s, Fannie Mae was a regimen sponsored, non-profit financial institution, designed to provide low-cost home loans to a state traumatized by the Great Depression. In 1970, FMae was privatized so as to run into it from the federal budget and Freddie Mac was established the same year. As g overnment sponsored organizations (GSEs), neither paid local or state taxes, they were exempt from Securities and Exchange registration and fees, they were permitted to operate with lower reserves than banks, and they could each borrow up to $2.5 billion directly from the U.S. treasury at low interest. The faith that they were backed by the government and operated so cheaply gave them access to massive sums of low-interest money flavour for both profits and security. With those advantages mortgages bought directly from lenders provided a large and potent profit stream which was reflected in high and secure investment trust prices.

Even larger immediate profits were made when those loans were box into bonds (Mortgage Backed Securities) and sold to investors at a high capitalized cherish justified by the expected profits on these package mortgages and the normal low interest on bonds. This proved so profitable that banks and other lenders packaged their loans into bonds, sold them on the commercialize for that quick profit (especially the agent rake offs), loaned out those replenished funds, and did this over and over again with riskier and riskier loans as housing prices climbed higher(prenominal) and higher and security requirements were lowered to essentially nonexistence. When bankruptcies jumped above normal, the value of those Collateralized Debt Obligations (CDOs) collapsed. The mart now knew home prices were going to drop, the losses were going to be very large, and those CDOs, SIVs, (Structured Investment Vehicle) or any... If you want to get a full essay, order it on our website: Orderessay

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