How can we take those in Washington D.C. in charge of financial reform seriously when they don’t include Fannie Mae and Freddie Mac in their discussions? When the dust settles, we will have dumped $145 billion in taxpayer money into these two government-sponsored enterprises with no end in sight.
Fannie Mae just asked the government for another $8.4 billion in aid after posting an $11.5 billion first quarter loss. This comes just a week after Freddie announced its own request for another $10.6 billion. Both companies warned of additional future losses requiring more government bailout dollars, which will be unlimited after the Obama administration raised the $400 billion debt limit late last year. With the promise of apparently endless bailout dollars, what incentive do Fannie and Freddie have to reform themselves? None!
Government subsidies for failing business practices will only promote additional failing practices. It provides incentive for companies to take their focus off improving their products and fixing problems and places it on to lobbying Congress for more money. The original justification for bailing out these giants was the American dream of home ownership for every American. We should keep in mind that the American dream is not about home ownership alone. It’s about the values associated with reaping what you sow in a just world.
Fannie and Freddie have created a positive perception of themselves as a homeowner’s friend and they have generated substantial political clout with strong contributions to political campaigns, but they are potentially the most dangerous type of enterprise. They allow private banks and mortgage companies to take substantial risks, pocket any profits for themselves, then dump the investments to Fannie and Freddie and count on taxpayers to take care of the losses.
Fannie and Freddie need to be broken into smaller private mortgage entities in order to eliminate the market distortions they create. There are many other reasonable ideas to consider, but one thing is for sure… it is disingenuous and irresponsible to leave them out of financial reform discussions.
Tony Larson, Publisher