Warren Buffet Says The “Game Is Over” for Fannie and Freddie


Warren Buffet, the oracle from Omaha, said today in a CNBC interview the “game is over” for Fannie Mae and Freddie Mac. He stated the not-so-obvious fact that the two GSEs both have a zero net worth which means stock and bond holders are holding an empty bag.

Hank Paulson’s recent law gives him the ability to lend or invest capital without restraints, so those with a stake in the two companies are holding their collective breaths.

The biggest losers should Paulson decide not to act are the regional banks like Midwest Banc Holdings with $67 Million in preferred stock at stake who’s CIO had this to say,

“I guess we are betting on Paulson. We have to believe that his plan carries the day somehow.”

Many regional banks, including the ones holding your checking and savings accounts, have millions invested with the two GSEs. Banks can not afford another hit to their balance sheets that a Fannie / Freddie collapse would surely cause. Banks are already capital strapped and another writedown of this size could trigger runs on regional banks like we saw last month ala IndyMac Bank and others.

Last week I wrote about Greenspan’s take on the crisis and his solution was to nationalize the GSEs wiping out shareholder equity with one mighty swipe of the pen.

Buffet seems to say here…it’s going to happen one way or the other.


My take is similar but slightly different. Sure, common share holders like individual stock owners (you and me) will get wiped out soon, but Paulson will probably pay the foreign bond holders and preferred stock holders since most of them are institutional investors both foreign and domestic.

This divvying up of the liabilities and keeping those happy who you need to invest in our debt and equities in the future is Paulson’s paramount objective…and it’s why he got legislative authority with the new law in the first place…to use it.

You didn’t really believe him when he said he most likely wouldn’t use it…did you?

Silly rabbit…tricks are for kids!

About Author

Rob K. Blake, a 15 year veteran of the mortgage industry, is a renowned public speaker, author, and former radio talk show host. His blog, TheMortgageInsider.net, is dedicated to educating mortgage consumers, mortgage providers, and investors about both mortgage and housing markets.


  1. I agree with your take; the common man will get the short end of the stick while guys like Paulson with the money and influence will come out if not ahead, at least not losing too much.

    I think right now it is better to own real estate than have your money sitting in the bank. I’m not the only one I know that believes that. I have sold several homes lately to people that said just that. Find the right deal and it’s a good time to own rentals again.

  2. Las Vegas Nevada on

    Eugene is exactly right. Better to have your money sitting in a piece of property than a bank right now. All of those homeowners that lost their property still need a place to live. Rentals are going to be where its at for the next couple of years. Hopefully by then this giant mess will be straightened out.

  3. The general public, and quite a few educated people to this very day, still do not understand the banking and monetary policies of this country.
    As Henry Ford said: “It is well enough that the people do not understand the banking and monetary policies of this country, for if they did there would be a revolution by morning”.

    It’s not about Freddie Mac or Fannie Mae, or any of the other financial issues being tossed at us everyday. Whether they survive, crash, get repaired makes no difference in our country and our economy. They are both, as well as all our other economic problems and crisis’s. They are symptoms of the disease, not the disease. The disease is the Federal Reserve System, and the simple fact that we are a manipulated system of the banking cartels, by a system of credit that is designed so that it can never be repaid.

    As long as a country allows others to control their issuing, printing, coining, and setting the values of that currency, that country will always be at the mercy of those who do. It’s simple, not complex. We stopped controlling our own destiny after the criminal senators and bankers fraudulently put the cancer in place in Dec 1913, signed by our own criminal president Woodrow Wilson. Yet, another proven sell out and traitor to his country.

    When will we learn that until we stand up and take back control of our own currency, which is clearly written in Article 1, Section 8, and we are not allowed to use fiat currency as stated in Article 1, Section 10 of the Constitution, that we will have no control of our country’s destiny.

    Our leaders and politicians have lost their way, and have for the past many years thrown it’s citizens overboard. But no one seems to notice, and no one seems to care. Why?

  4. The citizens will never figure out the monetary system and the duping they got by Wilson and Morgan as you so rightly explained it.

    The bankers knew a fiat currency and the private, secret ability to manipulate the economy to control politicians could only insure interest payments if the income used to pay the interest was backed by a direct tax on the citizens. So at the same late-night sessions wherein the Federal Reserve Act was passed, so was the creation of the IRS and the income tax.

    Most politician can never unravel the mess because it would mean admitting the income tax is not needed either.

    Politicians will never repeal the income tax…so the Fed and fiat currency is here to stay. Never mind that every empire that used a fiat currency has collapsed sooner or later.

    The only politician who got it right was Ron Paul…and he’s considered a “nut” …unelectable…by most belt-way kingmakers.

    Too bad, eh?

  5. Pingback: Bridget Magnus » Mixed Indicators

  6. John and Rob have it right, It’s the control of the money system that leads to the control of the masses and everything else. The bankers control everything and own everything. They print up pieces paper that look fancy and have laws passed saying they are worth something and everyone has to use them as money. If anyone thinks that this country needs to tax it’s citizens to function, ask yourself this: If the Federal Reserve can print up pieces of paper with any amount printed on them.
    Why do they need to tax us citizens? They can print any amount of paper they wish!! The reason they tax us is to take money out of the system so we don’t have price inflation to the moon, and so the criminals that run this system can continue to get unlimited goods and services for FREE!! that’s right they get everything for FREE!!

  7. This is freaking outrageous. You know what happens when you play Roulette and you don’t pick the right, color, number, or combination?


    You don’t bail out the biggest better at the table by confiscating the chips held by all the smaller fish at the table.

    By God, the only reason corporations were made people by law was to protect the people behind the corporations. If you or I, the common man, pulled this kind of drek we’d be hung by our testicles!

    If you’re running these corporations, don’t think we don’t know who you are and where to find you. When the sand finally washes out from under this castle, all the money and the fancy houses won’t shield you and your family from an angry mob.

  8. Eric Nordstrom on

    Hey! How about someone listen to Ron Paul for a freakin change? Click my name above to read more about the coming economic crash. The US is broke and no amount of Monopoly money can fix it.

  9. China is the largest holder of Fannie Mae & Freddie Mac bonds and demands a U.S. taxpayer-funded bailout, yet refuses to repay their government’s debt to Americans. 🙂

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