Bill Maloni: “Zimmer Plan” Redux: Not a
Fannie / Freddie Bailout

… uh, whoops

Your humble servant’s efforts to improve on the title of Bill’s last evidently showed that I’d missed the main point of the piece.

So here’s a clarification, and this time I’m not going to try to second-guess the author.

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“The Zimmer Plan” Redux
Not a Fannie/Freddie Bailout

by Bill Maloni

Last week I touted a proposal from Rob Zimmer, a DC-based financial services political consultant.

Zimmer would mandate the Obama Treasury, via regulation, or Congress through legislation (the former being far easier) that Fannie Mae and Freddie Mac reduce, to something lower than the current 10%, what they pay to the government for their TARP borrowings and direct the difference into dividends on previously issued preferred stock. That stock was gobbled up by many community banks, at the urging of then Treasury Secretary Hank Paulson.

But Paulson pulled the plug on the small banks (which he had cajoled into buying the capital qualify preferred stock) when he ended all dividends on GSE securities after putting both Fannie and Freddie into federal conservatorship late in 2008.

Zimmer’s idea has little to do with resurrecting Fannie and Freddie since the two companies would be paying out the same amount of money annually. He would share that $10 Billion between preferred stock owners and the US Treasury. It would be a huge capital benefit to the community banks which stand ready and willing to lend to small businesses and others.

Their big bank brethren, in contrast, continue to defy or slow walk the Obama team on Administration requests to the behemoth financial institutions to start lending again to small businesses where the potential for jobs generations seems greatest. (I am very surprised that the slogan loving GOP, so worried over small businesses hasn’t picked up this effort and championed it. It’s nearly cost free.)

The theory is that the small banks will lend to whomever the Treasury suggests, given that a few billion in dividends on their GSE preferred suddenly would allow them to generate $200-$350 billion in fresh lending. That’s a lot of potential jobs being ignored if Obama officials refuse to act on the idea.

I hope the Administration’s financial/economic/political wizards see the benefit in helping responsive smaller banks stimulate some fresh lending and rectify the tricky sleight of hand which the Paulson Treasury and Bush White House perpetrated against the community banks.

If Treasury doesn’t act, then Congress should.

Happy Winter and happy holidays to all and wishes for good health and much success in the coming year to you and yours.

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