Fannie Mae is an abbreviation or colloquialism for the Federal National Mortgage Association. It was created as a government sponsored enterprise in 1938. Its purpose was to purchase mortgages from banks so that they would have additional capital to lend thus allowing more people to finance home purchases.

Fannie Mae was designed to help lift the economy out of the great depression of the 1930s. It went public in 1986. It repackaged the mortgages it bought into mortgage-backed securities, which it in turn sold into the financial marketplace. Because it was a government creation, it carried the aura of being backed by the United States Government and thus the safety of its packaged securities was considered to be greater than it turned out to be. Its board of directors often had political connections resulting in their appointments. At the very least it is considered to be one of the enablers of the financial crisis of 2008.

Freddie Mac, the Federal Home Loan Mortgage Corp., was created in 1970 and was a further intervention into the secondary market for mortgages. It competed in some areas with Fannie Mae. It too carried the aura of government sponsorship and the implied safety of its packaged securities. It also shared in the 2008 global financial meltdown when its offerings proved to be based on questionable debt repackaged and sold around the world.

The reason these two financial poster children of questionable market intervention are important to each of us is that they have tremendous, if little understood ramifications, on the value of our personal net worth.

We are all subject to the unforeseen and usually unintended consequences of economic policy. We know that the automatic adjustment of price between buyer and seller has set the value of goods and services quite well for hundreds of years. Attempts to better or replace that process have not gone well. Fred and Fan are examples of that concept. Their rules and complexities are legion. Neither they nor what they do are easily understood. They must be a part of your personal financial strategy, like it or not.

Jack Falvey is a frequent contributor to the Union Leader, Barron’s and The Wall Street Journal. He can be contacted at