Fannie Mae and Freddie Mac Placed in Federal Conservatorship, $187 Billion Taxpayer Bailout

Treasury Secretary Henry Paulson announces that Fannie Mae and Freddie Mac, the government-sponsored enterprises backing $5 trillion in home mortgages, will be placed into conservatorship under the newly created Federal Housing Finance Agency. The seizure represents the largest government intervention in financial markets in U.S. history, ultimately costing taxpayers $187 billion while executives who oversaw the collapse face no accountability.

The GSEs’ crisis stems from their hybrid public-private structure that privatized profits while socializing risks. Throughout the housing boom, Fannie Mae and Freddie Mac expanded their portfolios of subprime and Alt-A mortgages to compete with Wall Street securitizers and meet HUD affordable housing goals. CEOs Daniel Mudd (Fannie) and Richard Syron (Freddie) collected tens of millions in compensation while their companies loaded up on toxic mortgages. Both men are later charged with securities fraud by the SEC for misleading investors about subprime exposure, but neither faces criminal prosecution.

The conservatorship structure allows Treasury to inject unlimited capital while wiping out shareholders and suspending dividend payments to the private sector. The GSEs ultimately draw $187 billion from taxpayers while continuing to operate as the backbone of the mortgage market. When housing recovers, Fannie and Freddie return to profitability and pay Treasury over $300 billion in dividends by 2020, but the windfall goes to the federal government rather than compensating harmed homeowners. The bailout demonstrates how privatized gains and socialized losses define the captured housing finance system: executives extracted hundreds of millions during the boom, taxpayers absorbed crisis losses, and no structural reforms prevent repetition.