Freddie Mac reported another loss of $4.1 billion dollars yesterday, using their ATM card at the Treasury Department to take another pull. So far, Freddie Mac has received $64.2 billion in taxpayer money from the Treasury. And that number, along with the Fannie Mae bailout, expects to go much, much higher.

The total cost to rescue and then overhaul mortgage giants Fannie Mae and Freddie Mac could reach $685 billion, according to estimates published Thursday by Standard & Poor’s.

Fannie and Freddie have already cost taxpayers nearly $134 billion, but S&P analysts said Thursday that the government could ultimately be forced to inject $280 billion into the firms because of a slowdown in the housing market.

Any entities that might replace Fannie and Freddie would need new start-up funding that would go beyond the money already committed.

This isn’t Nouriel Roubini predicting this, but the staid and conservative Standard and Poor’s. So let’s not hear another word about the cost-less bank bailout, OK? Clearly there’s a major loss here resulting from the popping of the housing bubble and the over-securitized mess that is Fannie and Freddie’s loan portfolio. Someone will pay for that. Will it be taxpayers and homeowners? Will it be investors? Or will it be the people who improperly sold the mortgages, improperly created the securities and improperly kicked people out of their homes?

Fitch, another credit rating agency, assigned a negative outlook for the entire residential mortgage servicer market in the US, so they clearly believe that they will see some losses here. And their rating reflects the entire servicer market, so Fitch clearly finds this to be an industry-wide problem. But when you have a situation where a kid dies from falling into the pool in a foreclosed home, and nobody knows who to charge because nobody can determine ownership of the property, then you have a serious problem. And the people who worked hard and played by the rules and are struggling mostly through no fault of their own shouldn’t be saddled with the bill for that misconduct.

Joseph Stiglitz writes:

The mortgage debacle in the United States has raised deep questions about “the rule of law,” the universally accepted hallmark of an advanced, civilized society. The rule of law is supposed to protect the weak against the strong, and ensure that everyone is treated fairly. In America in the wake of the sub-prime mortgage crisis, it has done neither [...]

To many bankers, these are just details to be overlooked. Most people evicted from their homes have not been paying their mortgages, and, in most cases, those who are throwing them out have rightful claims. But Americans are not supposed to believe in justice on average. We don’t say that most people imprisoned for life committed a crime worthy of that sentence. The US justice system demands more, and we have imposed procedural safeguards to meet these demands.

But banks want to short-circuit these procedural safeguards. They should not be allowed to do so.

This boils down to money and admitting loss. The banks don’t want to do it. They’d rather Fannie and Freddie – and by proxy the US taxpayer – swallow $685 billion dollars. And they’re breaking the law to ensure that. There’s another way, what Stiglitz calls a “homeowners’ Chapter 11,” in other words principal reductions to write down the mortgage to the value of the home. Lenders have the audacity to claim this would violate their property rights, given what they’ve been doing over the years.