Earlier this month, the United States doubled its outstanding debt obligations in a single day. What happened? Taxpayers were forced to honor the implicit guarantee the federal government made years ago to back up Freddie Mac and Fannie Mae’s financial obligations. Freddie and Fannie are at the heart of the current Wall Street crisis. Under the politically popular guise of ‘expand homeownership‘ Freddie and Fannie urgently pushed people who could not afford homes into loans they could not pay back. They successfully pressured Congress into providing as little oversight of their activities as possible, and even when they were caught red handed inflating profits, they successfully beat back any real reform.
Despite what defenders of big government on the left claim, Fannie and Freddie were deeply involved in subprime mortgages as well. In 2004 alone, they bought 44% of all subprime securities. Freddie and Fannie were created to get more money into the real estate market. Every dollar they pumped into subprime securities only made the real estate bubble worse.
So now that Freddie and Fannie have blown up and the federal government has had to bail them out, what does the left want to do with them? Nothing new. Just patch them up, pat them on the head and leave them be. A Freddie lobbyist tells The Hill: “It’s like a kid who gets straight A’s and then gets a DUI. Is the kid [messed] up? No, he made a mistake. … You can’t just get rid of Fannie and Freddie.”
Senate Banking committee chair Chris Dodd (D-CT) echoes the lobbyist line: “I think the burden falls on them to describe what they’re going to put in its place. And if their argument is we don’t need anything in its place, then you just dealt a very severe blow to the residential mortgage market and homeownership in this country.”
There the left goes again. Insisting that without government intervention everyone would be homeless. But, as always, the facts are just not on the left’s side. When Freddie and Fannie’s impact on real estate markets have been studied, the evidence shows Freddie and Fannie do not reduce mortgage costs for home owners. Instead, all the government entities seem to do is score huge profits and squeeze out the private sector.
That is why Freddie and Fannie ought to be broken up and sold.