Citi may be ready to pay back the U.S. government, but according to The New York Times at least four groups are still in need of funds from the federal government.
"These companies, the American International Group, Fannie Mae, Freddie Mac and GMAC, are not only unable to repay the government, they are in need of continuing infusions that make them look increasingly like long-term wards of the state," the Times wrote on Dec. 16.
That scenario, the Times said, makes the risk to taxpayers much higher. But the Times failed to provide important context about two of those "companies:" Fannie Mae and Freddie Mac.
While they may be "wards of the state" now, they were never fully private enterprises.
Fannie Mae, the Federal National Mortgage Association, was created by President Franklin Delano Roosevelt in 1938. Congress created Freddie Mac, the Federal Home Loan Mortgage Corporation, in 1970 upon worries that Fannie Mae would dominate the market, according to Investor's Business Daily.
Both the groups were government-sponsored enterprises (GSE's), created by government charter with the purpose of increasing home ownership and access to lower interest rates, with the implicit backing of the U.S. Treasury Department.
The only difference now is that instead of being hybrids, they are completely state-run and have the explicit backing of the Treasury.
Long before the 2008 bailout of Fannie Mae, the GSE had been caught in an accounting scandal 19 times the size of Enron. That was barely mentioned by ABC, CBS, CNN and NBC at the time. Meanwhile the Wall Street Journal exposed the Enron-like practices of Fannie and Freddie for years warning that disaster would eventually result from the overleveraging.
Even the Times saw the handwriting on the wall in 1999, reporting that pressure on Fannie Mae to "ease" credit could be a problem "in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s."
Yet, the Dec. 16, 2009 Times ignored the historic relationship of Fannie Mae, Freddie Mac and the federal government - and failed to the put the blame for the current situation squarely on the government's shoulders.
But the Times has a history of being blind to the relationship between the GSEs and the federal government. As BMI reported more than a year ago, the paper published an extensive article on how President Obama's Chief of Staff, Rahm Emanuel had made $18 million in less than three years in the private sector. The 1,700-word profile failed to mention that Emanuel had served on Freddie Mac's board of directors for two of those years - and at the very time Freddie was mired in political patronage and accounting scandals.
