Related:Democrat Chris Dodd says Obama Administration is to blame for AIG bonus as he eliminated the bonus restriction in the stimulus bill...

First is an email update from 03/19/2009 but the second article below is a statement from the same conservative think tank (The Heritage Foundation) predicting in 1991 what is happening now to our economy if congress doesn't act to fully privatize Fannie and Freddie.

Morning Bell: Bonus Outrage You Can Believe In

Speaking to a crowd of 1,500 supporters in Costa Mesa, California, about the bonuses given to employees of 80% taxpayer owned AIG, President Barack Obama said: “I know a lot of you are outraged about this. I’m outraged, too.” We’ll leave for others to decide the level of Obama’s outrage, especially considering reports this morning that the Obama Administration found out about the bonuses on February 28, not March 10, as they originally claimed. But what we would like to see some genuine outrage over are the millions of taxpayer dollars going to executives at the taxpayer owned companies Freddie Mac and Fannie Mae.

Fannie and Freddie reported combined losses of about $108 billion last year. But the damage they caused the entire economy goes far beyond the losses on their balance sheets. Fannie and Freddie are at the core of the current economic meltdown. Although they were only recently fully taken over by the government; for much of their existence Fannie and Freddie were quasi-governmental agencies that made no actual home loans. Instead they buy loans from banks, and then bundle and repackage them as securities. For years Fannie and Freddie leveraged their government-sponsored advantages — including exemptions from state and federal taxes, lower capital requirements, and the ability to borrow at rates well below those paid by private companies — to create a co-monopoly in the housing finance sector.

Contrary to what the left claims, Fannie and Freddie were integral to the creation and expansion of the subprime loan industry. With Fannie and Freddie as their largest customer, subprime king Countrywide Financial grew from a tiny institution to the largest mortgage lender in the country. Fannie and Freddie’s subprime business was not isolated to Countrywide. Fannie and Freddie both bought subprime securities since 1995, and by 2004 they were purchasing $175 billion worth of such securities a year, or 44% of the entire market. From 2003 through 2006 Fannie and Freddie bought more than a half trillion dollars in subprime securities. That is more than any other purchaser in the entire world.

In 1991, following the Savings and Loan disaster, Heritage pushed for the full privatization of Fannie and Freddie, predicting that “maintaining secondary mortgage firms in a twilight zone between the public and private sectors … may be a recipe for an eventual taxpayer bailout.” We just didn’t realize how huge that bailout would be.

Back in California, Obama told his audience: “We’re going to do everything we can to fix it. So for everybody in Washington who’s busy scrambling, trying to figure out how to blame somebody else, just go ahead and talk to me, because it’s my job to make sure that we fix these messes, even if I don’t make them.” President Obama did not create the Fannie and Freddie disaster, but he is not fixing it either. Instead of learning from the disastrous consequences of Fannie and Freddie’s market distorting housing interventions, the Obama Administration is doubling down by making Fannie and Freddie a center piece of their housing plan. Now that is something to be outraged over."

The below article is to long to report in its entirety. I will quote specifics but do click on link to read all. Very interesting read considering today's economy.

November 26, 1991
H.R. 2900 — Does It Reduce the Risk of Fannie Mae and Freddie Mac Failure?

"....This legislation was introduced in Congress principally be- cause of concerns about how Fannie Mae and Freddie Mac, with a combined $800 billion in assets, function in the economy and how much potential risk they pose to the taxpayer. Many policy makers, for instance, are troubled that while the organizations operate with the profit incentives of private firms, they enjoy special taxpayer subsidies and federal protection from failure. The haunting fear is that if the corporations falter, the taxpayer could end up being forced to bail them out.

Policy makers also are unsure how best to regulate such quasi-private organizaions. Policy makers disagree about what public obligations should be required of such corporations as a condition of their special status. It was such worry among policy makers that current regulatory safeguards may not be sufficient to prevent....

Fannie Mae and Freddie Mac were established by the federal government, in 1938 and 1970 respectively, to serve the purpose of supplying banks and other institutional lenders with ready access to residential mortgage capital, on the assumption that only publicly sponsored institutions could do this effectively and safely. The corporations receive federal favors that are denied to other mortgage institutions. For this reason, they are among the group of commercial organizations known as "Government-Sponsored Enterprises," or GSEs....

The legislation retains the quasi-independent nature of Fannie Mae and Freddie Mac. Thus managers of the corporations will still have the perverse incentive of shareholder pressure to pursue profit combined with taxpayer protection against failure. Further, the legislation continues the favored status of the corporations, courtesy of the Treasury; competing, fully private firms, of course, are not so privileged. The new regulatory office proposed by Congress would be more answerable to Congress than to the Executive Branch. Recent history, however, suggests that congressional "oversight" often leads to favoritism and corruption rather than to prudent regulation....Requiring Fannie Mae and Freddie Mac to increase their purchases of low-income mortgages will reduce further their profitability and financial soundness. Rather than trying to micromanage these quasi-independent government sponsored enterprises, taxpayers would be better protected, and homebuyers better served, if Congress were to completely privatize Fannie Mae and Freddie Mac, ending the benefits that they receive from the Treasury"

There is much more to this article especially the section on How Government Sponsored Enterprises Function!!! But let me go to The Major Issues section which are quite prophetical here:

Question 1. "Ouasi-Public or Private Status? Congress should question the wisdom of allowing GSEs to have it both ways: 1) the right to pursue profit in the private markets, and 2) a taxpayer guarantee against failure. It was the mixture of private profit-making incentives and govern- ment protection against failure, in the form of federal deposit insurance, that led to the staggering financial problems of the savings and loan industry..."

Question 2. "Who Is the appropriate regulator? If lawmakers conclude, albeit unwisely, that the existing status should continue, they must then find a way to regulate the GSEs so that they cannot continue to seek maximum profits while relying ultimately on taxpayer help if they get into difficulties."

Question 3. "Sound Financial Future? Congress has to strike a fine balance-making sure that the public objectives required as a condition of special benefits for the GSEs do not jeopardize their financial soundness."

Question 4. "Fulfilling a public purpose? H.R. 2900 calls for Fannie Mae and Freddie Mac to promote affordable housing. This objective, however, already is in the charter of both organizations. The bill sets guidelines that would force the corporations to devote many more resources to low-income housing."

Conclusion: "In light of the savings and loan bailout disaster, Administration officials and Congress are right to be concerned that taxpayers not become liable for a bailout of secondary mortgage lenders....Attempting to secure the objective by maintaining secondary mortgage firms in a twilight zone between the public and private sectors, and rigidly regulating them, on the other hand, may be a recipe for an eventual taxpayer bailout. Carl F. Horowitz, Ph.D. Policy Analyst"