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Privatizing Speculative Gain, Socializing Risk -- The American Prospect
Last edited Tue Jun 3, 2025, 11:27 AM - Edit history (1)
https://prospect.org/power/2025-06-03-privatizing-speculative-gain-socializing-risk-fannie-mae/Robert Kuttner
Private companies with government guarantees are the worst of both worlds and a bonanza for speculators.
Trump’s grand design for Fannie Mae ignorantly repeats a sordid history.
On May 21, President Trump said that he was giving “serious consideration” to privatizing the two giant entities that purchase mortgages on the secondary market, Fannie Mae and Freddie Mac. This could revive rampant speculation in the system of securitization of mortgages, which was the primary factor in the financial collapse of 2008. It would create a bonanza for hedge funds and private equity, which have spent nearly two decades setting up a lucrative trade. And despite the supposed “privatization,” the sums of money are so vast that government once again would be on the hook for a bailout, should the speculation cause another collapse.
In announcing the idea in a post on Truth Social, Trump himself let the cat out of the bag. “I am working on TAKING THESE AMAZING COMPANIES PUBLIC [selling them off on the stock market],” he wrote, “but I want to be clear, the U.S. Government will keep its implicit GUARANTEES.”
No! Either companies are private and accountable to markets, or they are part of the government, guaranteed by government and closely supervised by government. But private companies with government guarantees are the worst of both worlds and a bonanza for speculators.
The details get a little wonky, but the story is central to understanding both how deregulation and privatization of finance invites cycles of speculation and collapse, and how Trump is pouring oil on the flames. It epitomizes the corruption that predates Trump, and has intensified under his rule.
. . .
A prime architect of the privatization idea is Bill Ackman, one of the sleaziest hedge fund operators and a close ally of Trump in the assault on Harvard University. Ackman’s Pershing Square Capital Management and other hedge funds have invested heavily in Fannie and Freddie stock since 2010 or so, betting that the GSEs would be spun out to the private markets. Trump’s team considered it in his first term but failed to do so. But the stocks soared after Trump’s more recent announcement, meaning the long-awaited payday may yet come in.
. . .
In announcing the idea in a post on Truth Social, Trump himself let the cat out of the bag. “I am working on TAKING THESE AMAZING COMPANIES PUBLIC [selling them off on the stock market],” he wrote, “but I want to be clear, the U.S. Government will keep its implicit GUARANTEES.”
No! Either companies are private and accountable to markets, or they are part of the government, guaranteed by government and closely supervised by government. But private companies with government guarantees are the worst of both worlds and a bonanza for speculators.
The details get a little wonky, but the story is central to understanding both how deregulation and privatization of finance invites cycles of speculation and collapse, and how Trump is pouring oil on the flames. It epitomizes the corruption that predates Trump, and has intensified under his rule.
. . .
A prime architect of the privatization idea is Bill Ackman, one of the sleaziest hedge fund operators and a close ally of Trump in the assault on Harvard University. Ackman’s Pershing Square Capital Management and other hedge funds have invested heavily in Fannie and Freddie stock since 2010 or so, betting that the GSEs would be spun out to the private markets. Trump’s team considered it in his first term but failed to do so. But the stocks soared after Trump’s more recent announcement, meaning the long-awaited payday may yet come in.
. . .