Reuters Breakingviews delivers agenda-setting financial insight. Its global correspondents react to stories as they develop, delivering sharp and provocative commentary on big financial news as it breaks. Click here to read more international insights.
Freddie Mac's $72-billion (U.S.) government bailout could start to look like it was a good idea, at least on paper. The housing agency's first-quarter results indicate Uncle Sam may soon be able to pay back taxpayers and call the rescue a success. This will make it awfully hard to take Freddie out on the rowboat, Godfather-style.
Freddie has already returned 40 per cent of what it took from the federal government since it was taken into custodianship in the summer of 2008. A $30-billion tax credit, when it's eventually realized against earnings, could make taxpayers nearly whole.
The housing agency, like its cousin Fannie Mae, is gushing profits. Its business of guaranteeing mortgages is on much steadier ground now that the housing market is recovering and lending standards are much tighter. Moreover, the worst of the last decade's mortgage excesses have been wrung out of its massive home-loan portfolio.
In the first three months of the year, Freddie earned $4.6-billion, its second-largest quarterly profit ever. Moreover, it handed Treasury a whopping $5.8-billion dividend.
Uncle Sam's haul to date is nearly $30-billion. Add in the $7-billion Freddie plans to pay in June, and a $30-billion deferred tax gain, which it could realize as soon as the second quarter, and taxpayers will be in the hole by only $6-billion. If the company continues to churn out profits at the same pace as the first quarter, it could fill that gap before the end of the year.
The bad news is Freddie will look a lot less like Fredo, the wayward son of Vito Corleone in The Godfather who was taken out in a rowboat to meet his maker. Even if taxpayers are made whole, Freddie or Fannie can't buy the government out of its majority stake. And the formerly troublesome twins are on their way to becoming a lucrative revenue source for a cash-strapped government. That could make them simply too profitable to kill.