John Carney reports in the Wall Street Journal's "Heard on the Street" column:
Fannie Mae isn't the immensely profitable company some of its biggest investors hoped it would be.
Despite a sizable increase in the fees Fannie charges for its mortgage guarantees, the company on Friday reported fourth-quarter net income of $1.3 billion, down 80% from a year earlier. Revenue fell 21% to $5.5 billion...the results severely undercut the argument that a 2012 change to the company's bailout, which allows the government to sweep substantially all of Fannie's profits, amounts to an illegal expropriation. In fact, Fannie's quarterly payout to the Treasury would have been about $1 billion higher under the bailout's original terms. And to date, the internal rate of return to the Treasury on the bailout of Fannie is an unimpressive 5.6%.
Mr. Carney's always been a mensch to me and in general I am an admirer of his work. But I don't find convincing his claim that that Fannie's lower profits "severely undercut the argument" that Fannie's profits were illegally expropriated by the government from shareholders.
The way I see it, property rights are property rights, totally independent of the future condition of the property. For example, suppose that instead of the government seizing a company and its profits in 2012, it was a carjacker seizing a car. Does it make the carjacking any less of a crime, from the perspective of the car's original owner or from an independent observer's perspective, if in 2014 or 2015 the car breaks down?
If the government takes a business away from its owners, it doesn't make it any less bad if the government earned an "unimpressive 5.6%" on the investment. This is the same government, after all, that is paying buyers of U.S. Treasury bonds an even less impressive zero percent coupon.
To me, the fact that a business is earning $1.3 billion a quarter doesn't undercut the argument that the government was wrong to take it away from its owners, let alone "severely" undercut it. If the Wall Street Journal doesn't grasp that, let's see how it would react if the government decided to take the newspaper's profits away from Rupert Murdoch and other shareholders and seize them for the taxpayers. It would be an affront against property rights even if the Wall Street Journal's revenues were to decline in coming years, and even though the Journal yields profits of far less than $1.3 billion a quarter.
Am I missing something?
Update: Mr. Carney responds in the comments section here. I love how the Internet allows this quick kind of back-and-forth.
