Feed: Good Riddance to Fannie and Freddie - AggScore: 12.9

Good Riddance to Fannie and Freddie

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img classalignright styleborder 0pt none srchttp4.bp.blogspot.comwAvbGpfY5uATWEaJEtkkmIAAAAAAAADCk4U6UgMiKBss400Foreclosuresign.jpg border0 alt width400 height266 I have this theory that we, the adults, all function at the emotional level of 13yearolds, the age of bar mitzvahs in which the young man can declare to the congregation, Today I am a man. Insert laughter hereThey are, of course, not adults and must wait until the ancient age of 18 to vote and 21 to get plastered. At that age, one would think that getting a bank loan to purchase a home would be difficult. Until the housing bubble burst, it wasnt.Before the financial collapse of the housing mortgage market in late 2008, some banks were making Ninja loansno income, no job, no assets.In a recently published book, How the West was Lost Fifty Years of Economic Follyand the Stark Choices Ahead, internationally acclaimed economist, Dambisa Moyo, delivers the bad news.When, as early as the 1930s, the United States government embarked on an aggressive homeownership strategy designed to get millions of Americans on the housing ladder, wrote Ms. Moyo, it did not foresee what it was letting itself in for.Distracted by the siren call of home ownership for all, policymakers inadvertently launched a fiftyyear culture of debt and spawned a generation that set their economies firmly down a path of economic destruction.At the heart of the collapse were two governmentsponsored entities, familiarly called Fannie Mae and Freddie Mac. By promoting a strategy of broad homeownership sweetened by subsidy, Western governments have done more harm than good and are actually contributing to the demise of Western economies as a whole.Ladies and gents, I give you the socialist economies of Greece, Spain, England, Ireland, et al. To which one must add, of course, the United States of America, the greatest economy on earth since the end of World War Two and one that still generates a gross domestic product annually of 14 trillion.Writing on CNNMonday.com, a hrefhttpmoney.cnn.com20110211newscompaniesfanniefreddielossesindex.htmChris Isidorea summed up the problem. When the dust settles, the federal bailout of Fannie Mae and Freddie Mac will be the most expensive government rescue of the financial crisisit already stands at 153 billion and counting.American taxpayers are on the hook for the debt Fannie and Freddie accumulated before the mortgage loan collapse.This explains why, on February 9th, The Wall Street Journal reported that the White House Plans Revamped Mortgage Market. How about a headline that says White House Plans to shut down Fannie and FreddieIn October 2010, thats what Emil W. Henry, Jr., the CEO of Henry, Tiger LLC and former Assistant Secretary of the Treasury from 2005 to 2007, proposed in a Wall Street Journal article. He suggested it was time to eliminate the governmentsponsored entities GSEs moving their activities to the private sector.How poor was the oversight by the Treasury Department By the mid2000s, the GSEs process of debt approval had devolved to a single notification processof Treasury, without any formal process of approval. Fannie and Freddie sent Treasury a note!In January, Peter J. Wallison, a senior fellow at the American Enterprise Institute, was published in the Journal, Moving Beyond Fannie and Freddie, in which he wrote If the 2010 election means anything, it is that the American people want the government to stop pursuing policies that put the taxpayer at risk for private failures. You thinkAs offbudget vehicles with virtually unlimited resources, wrote Wallison, Fannie and Freddie were readymade for political exploitation and advocates for lowincome housingby 2008 half of all mortgages in the U.S.27 millionwere subprime and other highrisk loans, often with little or no down payments by borrowers.Ms. Moyo wrote Remember, these banking activities are not illegal. Banks and bankers are simply operating under the policies stipulated by the governments. These are the rules of the game.It is perhaps no surprise that the industry which over time has shown the greatest appetite for risk is precisely the industry that had the most government guarantees on its debts the banking sector.Now, if you have noticed that the word government keep popping up throughout this discussion to shutter Fannie and Freddie, it is no accident. They are creatures of the government despite the fiction that they were private enterprises.The government does not belong in the mortgage loan business and never did. It doesnt belong in the railroad business either.The government controls all of the energy assets of the nation either as public land or through its regulatory apparatus.It allegedly oversees the activities of Wall Street, but that didnt stop Bernie Madoff from fleecing people of 50 billion. Or the toxic assets collapse.To avoid a complete breakdown of the nations financial system the government had to loan billions to several banks and one too big to fail insurance company. Lehman Brothers did not receive a loan and failed. Other elements of the nations financial sector were forced to merge to avoid collapse or, in the case of Freddie and Fannie, were seized by the government.It is the same government that not only cant seem to find a commonsense answer to the awaiting disaster of Social Security, but it is the one that forced a bill through CongressObamacareto increase the number of people on Medicare while taking 500 billion out of its account.If 13yearolds were running our government, these are the results you could expect.The decision by voters to give majority power to the Republicans in the House and to elect some tough Republican Governors suggests that progress is being made against the excesses and abuses of power that have brought the nation to the brink of financial collapse. And thats a good thing. Alan Caruba, 2011