Finance Wanted.

By Tom Simmons

Fannie Mae and Freddie Mac are two government sponsored entities (GSEs). GSEs are set up by the government but run privately. These two GSEs were started to back up mortgages, making it easier for banks to dole out more mortgages with greater risks and lower rates to more families. Fannie Mae and Freddie Mac combined now own or back up almost half of all mortgages in America.

With this in mind, the two GSEs hold a lot of power and sway in the American economy. Their unusual combination of government and private backing allow them to reap benefits that other companies cannot. These benefits caused them to grow enormously and also caused the market and investors to trust them more than other companies. There is a rationale suggesting that because Frannie Mae and Freddie Mac both have government backing, even if they crash, the government will save them by whatever means necessary. This cushion gives investors a sense of security. And this sense of security has allowed a housing bubble to form.

Another issue involved with the governmental backing of Fannie Mae and Freddie Mac is their sheer size. Combined, the two GSEs hold over $3 trillion in purchased mortgages. If they were to hit a financial crisis, it's true that the government would have to bail them out, but it would be done on behalf of the taxpayer. What it comes down to is the size of the two GSEs is so influential that a financial crisis for them would be a financial crisis for many Americans.

Since then, there have been many efforts made to regulate Fannie Mae and Freddie Mac so that the two of them manage their finances and prevent Americans from suffering from risky maneuvers. There have also been attempts to try and completely privatize the two GSEs, thereby removing all of their governmental perks, but so far all attempts have proven unsuccessful.

There are numerous arguments concerning what should be done with Fannie Mae and Freddie Mac. In 2003, both companies were found to have improperly accounted their earnings by the billions, leading to the resignation of several of top-notch executives. Needless to say, Fannie Mae and Freddie Mac's incredible amount of financial power and ubiquity have kept them under close scrutiny by economists and politicians alike.

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Submitted by Tom Simmons at http://NewSunSEO.com