Debt merry-go-round

Fannie, Freddie, AIG and GMAC coming around again for more of our tax dollars

Topics: Bank Bailouts, War Room,

Here’s hoping the Americans like going around in circles when it comes to our national debt. Because the New York Times article today by Mary Williams Walsh about the situation at Fannie Mae, Freddie Mac, AIG and GMAC promises a carnival ride from hell for the U.S. taxpayer.

Describing them as institutions “in need of continuing infusions that make them look increasingly like long-term wards of the state,” Williams Walsh essentially reports that the institutions will be needing to borrow future monies to pay off their existing obligations to the government:

Like the big banks, these four companies would no doubt prefer to be free of government assistance, which comes with pay and other restrictions on their executives. But they appear at risk of getting onto a debt merry-go-round, where they have to draw new money from the government just to keep up with their existing government debts.

Fannie Mae recently warned, for example, that it could not pay the dividends it owes the Treasury, so “future dividend payments will be effectively funded with equity drawn from the Treasury.”

All told, the four have already drawn $600 billion combined and that figure could grow to $1 trillion. To put that figure into perspective, if unpaid it would be more than the 10-year cost of the healthcare plan. My word.

And how are they doing so far in honoring their obligations? Answer: mixed.



A spokeswoman for GMAC pointed out that the company had made all its scheduled dividend payments to the Treasury, as had Freddie Mac. While Fannie Mae has said it will have trouble paying its dividends, A.I.G. does not have to pay dividends.

A spokeswoman for A.I.G. said that the insurance company was committed to repaying taxpayers, but repayment would depend on market conditions. A Freddie Mac spokesman said that the company was dependent on continued support from the Treasury to stay solvent. A.I.G.’s latest request for money offers an example of why it needs more government aid to pay its debts.

Thomas F. Schaller is professor of political science at the University of Maryland, Baltimore County and the author of "Whistling Past Dixie: How Democrats Can Win Without the South." Follow him @schaller67.

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