Bailout recidivism: Banish Fannie and Freddie
“Re·cid·i·vism [ri-ˈsi-də-ˌvi-zəm] noun: a tendency to relapse into a previous condition or mode of behavior; especially: relapse into criminal behavior.”—Merriam-Webster’s Dictionary
The infamous government-backed mortgage finance behemoths, Fannie Mae and Freddie Mac, want more money from taxpayer coffers to continue funding the exact same activities that helped bring the economy to its knees.
As if $145 billion wasn’t enough already, last month Fannie and Freddie requested an additional $20 billion bailout from the U.S. Treasury. Better yet, the Congressional Budget Office estimates that they’re going to need $400 billion more—enough bailout cash to give $5 to every person who’s ever lived.
The American people are tired of this madness, and, as a young person, I don’t want to be stuck paying for these bailouts the rest of my life.
Since this crisis began, Fannie’s market cap fell from $40 billion to $640 million and Freddie fell from $26 billion to $500 million; both were taken over by the government and delisted from the New York Stock Exchange.
Dismantling these juggernauts is a pivotal opportunity to fix one of the seminal causes of the crisis. Getting rid of Fannie and Freddie will not only save Americans hundreds of billions of dollars, it will prevent taxpayers from ever financing another subprime loan again.
Once we’ve broken up the loans held by Fannie and Freddie and sold them off to nongovernmental banks, we can get the feds out of the housing business forever.
The Federal Reserve and the Treasury already hold the worst of Fannie and Freddie’s old holdings, so it shouldn’t be hard for the government to sell the $10.7 trillion in home loans still held or guaranteed by the companies.
Compared to the $400 billion we will have to spend keeping these failures afloat, it’ll certainly be cheaper to just sell off these loans to the highest bidder. Even if we don’t get market value for them, we’ll still get more than enough to pay off the company’s debts and swallow the $1.14 billion in lost market cap.
The Democrats already rejected a similar fade-out plan. Senate Banking Committee Chairman Chris Dodd (D-Conn.) explained, “We need to have a housing-financing system in place.” I guess if a system fails, stick with it.
It’s funny how the party of “change” seems to be so addicted to Washington’s status quo. If a government program crashes, give it more money and blame free markets.
The American people have had enough. We are tired of the Wall Street welfare resulting from incessant government overreach.
For years, the government, through Fannie and Freddie, incentivized lenders to give loans to low income and minority borrowers who otherwise would not have qualified. This coerced compassion put the banks and our economy—especially the people the government tried to help—in a position to inevitably fail.
These acts, while not exactly criminal, are improper for any government.
The government should never again be allowed to push our most vulnerable citizens into a financial canyon of foreclosure and bankruptcy.
But they are. The same destructive policies remain. Fannie and Freddie persist to give loans to people who cannot afford them. Coupled with the Federal Reserve’s easy-lending practices, the government continues to risk putting us all into further economic peril.
We must take the power away.
The idea that private banks cannot properly decide who qualifies for loans is fallacious. No bank wants to endanger their financial position by giving out thousands of loans to people who can’t pay them. Sure, they’ll take on some risk, but never again will ultra-risky loans be dealt out en masse.
If our politicians ever develop the political courage to cut Fannie and Freddie, this action will be the first reform to actually address the roots of the crisis. At best, the remedies from Washington thus far treat the symptoms. We’ve got to get rid of the disease.
Ron Meyer hosts We the People Internet Radio Show and writes a weekly column for Human Events. He is a student at Principia College and a former National Journalism Center intern who has also written political opinion for AOL News and the Santa Barbara News-Press.