Wednesday, July 6, 2011

What is the incidence of the Fannie-Freddie bailout?

There is lot of rending of garments and gnashing of teeth that the FF bailout will cost something like $300 billion, including the implicit subsidy to mortgages that are guaranteed (the cash flow cost right now is something like $130 billion).  So for an economy whose GDP is roughly $14.5 trillion, this is a little more than two percent of GDP.

To whom does the money go?  Given that shareholders were essentially wiped out, it goes to largely three places: holders of Fannie and Freddie debt, the US Treasury (which owns preferred shares in the companies) and homeowners.  I am curious how this shakes out distributionally.  Clearly, homeowners are on average richer than renters, and bondholders are richer than non-bond holders, so the bail-out must have some regressive implications, but it is not clear to me how much so.  It is at least worth thinking about.