FHLBs = toast

[Beet]

By Rolfe Winkler CFA

Though you may have never heard of them, 3/4s of the Federal Home Loan Banks may implode, adding billions more to the Fannie/Freddie bailout tab.  Bloomberg:

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What does this have to do with the Fannie/Freddie bailout?  Well, few people noticed when that bailout announcement was made, but when Treasury agreed to bail out Fan and Fred, it also backstopped the Federal Home Loan Banks:

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The Federal Home Loan Banks are “government sponsored enterprises” like Fannie and Freddie.  Like Fan and Fred they have always benefited from an implicit government guarantee of their debts.  That guarantee enables them to obtain low cost funding, which they pass on to member banks in the form of cheap loans.  They are also quasi-private in that, like Fan and Fred, they are owned privately.  Fan and Fred were owned by their individual shareholders.  The FHLBs are owned by banks themselves, which contribute equity to the FHLBs so that the FHLBs can in turn provide cheap funding back to member banks.

It’s all a scam designed to provide low cost funding to favored borrowers. 

http://optionarmageddon.ml-implode.com/2009/01/08/the-fanniefreddie-rescue-bill-just-got-a-lot-steeper/

[Sam Spade]

I have kept hearing rumors over the past few days that FHLB Atlanta is going to be bailed out by the Feds (i.e. taken over), as well.  The article is probably right, I suspect, anyways.