For Debt Addicts Fannie Mae and Freddie Mac -- the Big Fix

If you heard about a drug treatment program that gave heroin addicts a continuing, unlimited supply of the powerful narcotic, insisting only that they be minded by a “conservator,” you would surely say – no way.

But that’s exactly what the Fannie Mae/Freddie Mac federal bailout does. The two housing hermaphrodites will be able – actually be compelled – to continue the reckless financing strategy that has taken them, and much of the global financial system with them, to the edge of calamity.

Oh, goody, we are told, the two “F’s” won’t be able to do any more lobbying – on which they spent $170 million in the past decade – and their new CEOs will take big pay cuts.

But consider this fine print from the agreement (the last graf):

“Each [government-sponsored enterprise’s] retained mortgages and mortgage-backed securities portfolio shall not exceed $850 billon as of Dec. 31, 2009, and shall decline by 10% per year until it reaches $250 billion.”

With the two F’s total liability standing at about $6 trillion – counting mortgages they both own and back – how are they going to shrink that staggering pile of obligations down to $1.7 trillion ($850 billion x 2) in a year-plus?

For at least a couple more years, the real estate market will continue to be pulled downward as the second-wave crisis kicks in – the so-called “Alt-A” loans that were turbo-dispensed in the years leading up to the current mess. These no- or low-interest introductory loans, which are automatically kicking into punishing “resets” that will continue till about 2010, are a financial time bomb. To try to prevent a megaton detonation, the two F’s will have to take over foreclosed Alt-A’s that it backed. As they do that – with seemingly unlimited taxpayer dollars -- how will they manage to reduce their mountainous obligations?

Treasury Secretary Hank Paulson won’t be around to have to answer for the virtually certain failure. In the bailout language he crafted or at least approved, the most time-certain word is “until.” Until when – hell freezes over?