2017-02-26economist.com

At issue is the Obama administration's decision in 2012 to hoover up all of Fannie and Freddie's profits. Until then, it had received a fixed dividend on its investment. The timing of the shift was striking--just before a surge in the firms' profitability. Since 2008 the Treasury has sucked in about $250bn from the firms, 30% more than the cost of the bail-out.

The change enraged hedge funds who had bought Fannie and Freddie's shares and found themselves expropriated. The investors' lawsuit held that the government overstepped its authority by seizing all profits. A federal court dismissed that claim in 2014; it has taken until now for an appeals court to uphold the most important parts of the decision. An odd aspect of the ruling is that it largely ignored the substantive arguments but concluded the court lacked the authority to curb the government's actions.

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The firms are hardly robust. The Treasury is running down their capital by $600m a year. By 2018 they will have none left. From then on, should the firms make a loss, they will need to draw on an emergency line of credit from the government. Doing so would be characterised by some as a second bail-out.



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