Larry Lindsay makes a fine point in his editorial today in the WSJ, Hank Paulson’s Fannie Gamble, that I hadn’t thought of:

First, Congress rejected a proposal that Fannie and Freddie be barred from paying dividends if they are receiving injections of capital from the federal government. This idea would seem to be the first lesson in a course on Government Bailout 101. The government shouldn’t be shoveling taxpayer money in the front door while the company is shoveling dividends to shareholders out the back door.

Freddie Mac paid $1.6 billion in dividends last year while Fannie Mae paid $2.5 billion. Both have dividend yields that are many times higher than the norm. Congress chose to protect the shareholders at the expense of the taxpayer.

Our politicians really drove a hard bargain with Fannie and Freddie. No one in the boardroom or executive suite got canned. Shareholders keep getting their dividends. And they keep all the upside. If they fail we just get the bill. Is it any wonder that politicians don’t work in the private sector? No investment banker would last long making a deal like this. Just another example of politicians looking out for themselves rather than us.

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