Fannie and Freddie are being used as conduits to take bad assets off the banks' books.

Off the Books Bailout for the banks

Ten days ago I reported on the process, described by John R. Talbott at Salon.com, that the Fed has been using to transfer bad mortgage debt from its member banks to the taxpayer, using Fannie Mae (FMN) and Freddie Mac (FRE). Talbott called this the "trillion dollar fraud".

More on how Fannie and Freddie are used to continue bailing out banks has come to light since. Peter Gorenstein at Ticker Tech has an article covering recent interviews with Dean Baker, co-director of the Center for Economic and Policy Research and with Barry Ritholtz of Fusion IQ (author of The Big Picture blog and acclaimed book "Bailout Nation"). There is also a video of the interview program.

Now that Fannie and Freddie are in conservatorship under government control (since September, 2008), Baker and Ritholtz both suggest that continued mounting losses at the two GOEs (government owned enterprises) are being accumulated as a matter of policy. Ritholtz said Fannie and Freddie are being used as conduits to take bad assets off the banks' books. He said it looks like we are running an unofficial TARP through Fannie and Freddie. The term "backdoor bailout" was used in the discussion.