This Saturday, Sarah Palin told a crowd in Colorado Springs, CO: “The fact is that Fannie Mae and Freddie Mac have gotten too big and too expensive to the taxpayers. The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help.”
Now some in the press are claiming that this statement “puts her at odds with reality” on how Freddie and Fannie operate. However, it is the press, not Palin, that needs to take some “Fannie/Freddie lessons.”
For example, ABC’s Jake Tapper writes:
They’re private entities.
Though they’re private entities ultimately backed up by the taxpayers.
But the only way Fannie and Freddie are “too expensive to the taxpayers” is if you’re talking about the bailout announced over the weekend.
No Jake. Fannie and Freddie were never private entities. Fannie is a relic of the New Deal and Freddie was chartered by Congress in 1970. When Fannie was partially privatized, and since Freddie’s inception, both entities have benefited from an implicit federal guarantee of their outstanding obligations. If they were just ‘private entities’ as Tapper claims, they never would have been able to establish a massive duopoly in the U.S. mortgage market. Only because of their ‘government sponsored entity’ status were they able to lower their borrowing costs below what real ‘private entities’ had to pay.
The only thing this weekend’s bailout did was turn an implicit promise into an explicit one. That’s it. Fannie and Freddie’s reckless participation in the subprime mortgage market have been making them “too expensive to the taxpayers” for years now.
Unlike Tapper, Sarah Palin grasps this essential truth of the issue. She writes in the Wall Street Journal today:
The bailout of Fannie Mae and Freddie Mac is another outrageous, but sadly necessary, step for these two institutions. Given the long-term mismanagement and flawed structure of these two companies, this was the only short-term alternative for ensuring that hard-working Americans have access to affordable mortgages during this difficult economic period.
We are strong advocates for the permanent reform of Fannie and Freddie. For years, Congress failed to act and it is deeply troubling that what we are now seeing is an exercise in crisis management rather than sound planning, and at great cost to taxpayers.