The Office of Management and Budget (OMB) dropped a few bombshells in their announcement today.  First and foremost was the news that after receiving an already mammoth $78.8 billion handout from American taxpayers, Fannie Mae and Freddie Mac would require an additional $92.2 billion in 2010.

We’d like to believe that 2010 will mark the end of taxpayer handouts for the massive failed companies — but somehow we’re not comfortable predicting recovery for these two behemoths whose pain only seems to go from intense to more-intense.

Perhaps more telling than the horrifying 2010 budget requirements was the OMB’s bombshell number two:  One prescription being considered for both GSE’s includes a liquidation of all assets and a “wind down” of the entities.  In other words:  Shut them down?

Bloomberg reports:

Alternatives range from “a gradual wind-down of their operations and liquidation of their assets,” to returning the two companies to their previous status as government-sponsored enterprises that seek to maximize shareholder returns while pursuing public-policy goals, according to OMB’s analysis of President Barack Obama’s proposed federal budget.

…

The companies are coming under increasing strain as the Obama administration leans on them to help refinance and modify loans at risk of foreclosure amid the worst housing market since the Great Depression, Fannie Mae and Freddie Mac have said in securities filings. The government-sponsored enterprises pose a risk to the economy, though the federal takeover and Treasury backing have “substantially reduced” that threat, OMB said.

‘Vital Parts’ of Economy

“The GSEs borrow huge amounts from various types of investors, and the health of the housing market critically affects the overall economic activity,” the budget office said. “Thus, financial trouble at one or more of the GSEs could unsettle not only the mortgage finance markets but also other vital parts of the financial system and economy.”

Fannie Mae and Freddie Mac may be nationalized, dissolved and broken up into several smaller companies, revamped as public utilities with the full faith and credit of the U.S. government or converted into insurers for covered bonds backed by U.S. mortgages, OMB said.

Washington-based Fannie Mae has booked seven consecutive quarters of losses totaling $86.8 billion as of March 31. McLean, Virginia-based Freddie Mac, which is expected to report its first-quarter results this week, has reported six straight quarters of losses totaling $53.8 billion as of Dec. 31.

Like many other U.S. financial institutions, Fannie Mae and Freddie Mac face “market risk, credit risk and operational risk,” according to the budget office.

Forgetting for a moment that we were told repeatedly that the bailout of Fannie and Freddie would ‘not cost the taxpayer a thing’ because their enormous portfolio of assets would cover the cost of the bailout, we at The Analytic think shuttering the companies is the first good idea sprouting from the dimly lit halls of the OMB in many a month.   Not only have these entities failed at their core mission to make housing ‘more affordable’, but they have failed as viable business entities and endangered the overall economic security of the United States.

It has long been our opinion that preserving (let alone rewarding) failures of such historic proportion should only be considered by a people whose goal is to financially immolate themselves. While there will certainly be enormous logistical issues associated with any such “wind down” — these issues should be addressed quickly and confronted head on.  In short — these enterprises are dangerous and will continue to be dangerous if they are allowed to survive intact.