Fannie Mae and Freddie Mac could cost the banks 400 Billion

Bank executives were panicking last night over a proposed fix to Title II of financial reform literally penciled in at the last minute. The fear is that that the proposed change to the orderly liquidation authority could leave banks on the hook for a possible wind-down of Fannie Mae and Freddie Mac that could cost as much as $400 billion. In the House counter-offer below, Fannie and Freddie are penciled in as falling under the definition of 'financial company,' meaning they could be resolved by the orderly liquidation process.



If you haven't been paying attention, the thing to know here is that financial reform envisions a big winddown fund that's funded by the banks themselves -- prepaying their own funeral expenses, basically. Fannie and Freddie are technically still alive, and have never been wound down, continually slurping aid from the government.



This would obviously be a huge cost to the banks if they were saddled by this, and it seems unfair. That being said, the banks profit massively from Fannie and Freddie during the boom years. Some will say it's on them to pay back the piper.