FM Watch: Where They Are Now

So, how's the old "anti" Fannie/Freddie gang holding up these days? Funny, you should ask. Formed in 1999 or thereabouts, FM Watch was a lobbying group whose sole mission in life - at least early on - was to block and thwart the then-expansionist tendencies of Congressionally chartered mortgage behemoths Fannie Mae and Freddie Mac. Lobbyists who worked for FMW liked to argue with me that they didn't really want the GSEs destroyed - they just wanted the two put in their place so they wouldn't hurt the profitability of their companies.

Well, guess what? The FMW crowd got its way. Fannie and Freddie (as we all know) crashed and burned as private sector companies and are now the wards of Uncle Sam because (take your pick) they were too big and powerful (politically speaking); no regulatory body in Washington had the power to truly regulate them; their specific investments were hidden from public view; politicians took their money, did their bidding and protected them; and they screwed up in a major way by investing $600 billion or so of their combined assets in subprime, alt-A and other asset classes that are now in the tank.

Readers know the story pretty well so there's no sense in going down that road again. But what about the old gang from FM Watch? Two years ago the group disbanded, slapping each other on the back, and popping champagne for a "mission accomplished" moment. They moved onto bigger and better things in financial life. Or did they?

So, let's take a closer look at the "good guys" - those firms that can say, "We made a difference by standing up to Fannie and Freddie, and Leland Brendsel and Franklin Raines." Here, in no certain order, are the founding board members and movers and shakers behind FM Watch. They might have looked good two years ago but as the saying goes: that was then, this is now.

* Household International. Remember that firm? A non-bank "consumer finance company," Household was William Aldinger's baby until it was sold to the London-based Hong Kong bank HSBC Holdings in 2003 for $14 billion. Aldinger dumped Household just as its delinquencies were beginning to creep up. Two years ago, Household's toxic subprime assets began leaking into HSBC's earnings. The bank has taken billions in losses on former Household businesses and last week drove a spike through its remaining retail branches.

* American International Group. Maurice "Hank" Greenberg was an early participant in FM Watch. He was fearful that eventually Fannie and Freddie would glom onto the mortgage insurance business, which would harm AIG's United Guaranty unit. AIG made a market in credit default swaps and couldn't cover all the bad bets (insurance contracts) it wrote on subprime ABS securities. To date, Uncle Sam has pumped in $150 billion in taxpayer money into AIG and now owns most of it. At last check its shares were trading at 35 cents a pop - less that what Fannie and Freddie trade for.

* General Electric. GE, too, was afraid that FanFred's growing appetite for profits would hammer its MI unit so it signed up for the FM Watch Holy Grail. As it turns out GE eventually sold not only its MI business (a profitably and conservatively managed company) but its A paper business, too. It then went out and bought WMC Mortgage, a subprime lender, only to close it down two years later.

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