Fannie Mae, Freddie Mac seizure has silver lining for TSP finances
September 10, 2008
Thrift Savings Plan participants are among the winners in the U.S. government’s takeover of mortgage giants Fannie Mae and Freddie Mac.
The Bush administration’s seizure of the two mortgage behemoths led to a sharp drop in the companies’ stock prices Monday and left American taxpayers as guarantors of nearly $6 trillion in mortgage debt that is either owned or guaranteed by Fannie and Freddie.
But that move is a positive one for the TSP’s F Fund, which carries more than $5 billion in mortgage-backed securities issued by Fannie and Freddie, according to the plan’s latest available financial statements.
"The securities that are in the F Fund from Fannie and Freddie are now guaranteed by the full faith and credit of the Government of the United States," said Tom Trabucco, director of external affairs for the Federal Retirement Thrift Investment Board, which administers the TSP.
Until Sunday, the two companies operated with the implicit backing of the U.S. government. As the U.S. economy faltered, those holding the companies’ debt came to trust that implicit guarantee less and less. The government’s move to put the two companies under conservatorship now guarantees those debts will be repaid.
So while Fannie and Freddie shares plunged some 80 percent Monday, shares of the TSP’s F Fund rose more than seven-tenths of a percentage point.
Other TSP funds benefited from the move as well.
Fannie Mae’s share prices plummeted from about $7 Friday to 70 cents by Monday’s closing bell, the TSP’s C Fund "went up in value [on Monday] — it was up by 25 points," Trabucco said.
The C Fund tracks the S&P 500, which both mortgage giants are part of. Fannie and Freddie’s impact on the index was more than compensated for by the rally caused by their takeover.
"For anybody who’s investing in the TSP, the story is a good one," Trabucco said.
Taxpayers, however, are now on the hook for the mortgage giants’ debt, and that could cost Americans billions.
William Poole, former president of the Federal Reserve Bank of St. Louis, told Bloomberg Radio that even if the two companies’ books suffer only a 5 percent loss, the bailout will end up costing taxpayers about $300 billion — many times what Congress agreed to in the bailout plan it agreed to with the Bush administration.
"I would not be surprised if their total losses aggregate about 5 percent of their obligations," Poole said, according to The Associated Press. "Five percent does not seem to me to be an outrageous guess."