Fannie/Fredie–All Fall Down

It looks like Congress is about to go along with the President and approve some sort of Government bailout of both Fannie and Freddie.   I personally think that is a bad idea for a number of reasons.   These institutions have been around for a long time and were creatures of the Government in the first place.   Fannie goes back to FDR days.   Was it really needed then or over the intervening years?   Do you believe that private entreprise couldn’t have financed the mortgages needed of the last 70 years?  All those Government programs that were started during the Great Depression didn’t really solve the economic woes of that day.   They may have helped but only marginally.   What brought us out of the Depression was WWII.   Talk to the older folks and ask them if they were doing well in 1939 or 1940 and most will tell you no.

Supposedly Fannie/Freddie hold about 5 trillion dollars worth of mortgages.   Surely you have noticed how that estimate has bounced around in the media; I have seen it as high as 9 trillion and as low as 4 trillion.  But whatever the number you must remember that the overwhelming majority of those loans are current.   The borrower is performing and paying off the loan.   If Fannie/Freddie went under “we” would not lose trillions.   The loss would only be for the bad loans.  Yes, it might be a pretty big number but manageable.   Of course if we didn’t do anything then we taxpayers would have no loss at all.  During the Savings and Loan crisis of the late ’80’s we had a lot of them fold and the loss was in the billions but only on the bad loans and most of the loss was due to Government regulators coming in and demanding revaluations of everything with a very implicit threat that the new values had better be lower to justify the actions of the politicians.   Guess what, the values were lower and the losses aggravated.

Does the Government really need to be in the mortgage business?   There is and always has been ample money for mortgages in the private sector.   That mortgage business has to compete for money just like any other business and that is as it should be.   The Government “implicit” guarantee of the business of Fannie/Freddie will now become explict it appears and that will cost all of us money.   It is a private company even though chartered by Congress.   Those investors in Fannie/Freddie knew what they are buying.   I am not excited about anyone having to take a loss but exactly why am I responsible for the private business decisions of others.   If the Government ends up buying stock it will take the majority position and control the companies and then we face a “busines” that is existing to promote the agenda of one party or the other; rather than a company doing what it thinks is best for its shareholders.   Just another variation of Bread and Circuses for the masses is what it will become.

If you have dealt with the IRS, SSA, HUD or any other Government agency, can you just imagine having to go to a Government office when you have issues with your mortgage, take a number, and then findly meet with  a low level bureaucrat who is more interested in watching the clock than offering a service.  After all they can’t be fired as a practical matter.

If they did fail please think through what the actual results would be as opposed to the alarums of the Politicians.  Their assets would be liquidated.   There would be buyers who would want to get that stream of income from all those millions of performing loans.  The shareholders would lose.  They made a bad bet.   The average Joe who remains  current on his mortgage would not notice any difference except  maybe a new place to make his payment and a new holder of his mortgage note.   The failure of Fannie/Freddie would not “cause” a  foreclosure crisis.   Don’t believe that for one minute.  That is pure balderdash.   If the note is paid there is no foreclosure.    Yes the mortgage market might well be smaller for a couple years but that is the offset to the thousands of imprudent loans made earlier and those shaky subprime notes bought by Fannie/Freddie.  They didn’t have to buy those notes.  Our economic well being is best served by prudent business decisions made by both the consumers and the businesses serving them.   Bailing out Fannie/Freddie does not promote those  good  decisions.  It encourages people to make unsound decisions and rely on Mother Government to fix everything if things don’t go well.   Failure is not always a bad thing.  Hell, it is the cornerstone  of Darwinian theory.

Most importantly it would send the right message to the market place and the buying public.  I don’t like Socialism in any of its forms whether for business or the masses.   It brings a loss of individual freedom as its price.  Your options are reeduced in any area that is dominated by the Government.  I don’t want the Government to have a monopoly on the mortgage business.

“Stand Tall”, my mom  used to say that to me  when I was a boy and teen.   Those two words carry more than one message and all of them are worth heeding.     First, it is good for your body as my mom said.  Secondly, it evokes the right attitude toward difficulties we face in life.  No matter the problem or  how low we feel about them we must and should stand tall.   Think about the alternative.  It implies being a good soldier and “soldiering on” in the face of adversity.  Lastly, it means to be a good person with dignity and integrity.   All those messages were worth hearing.  Thanks Mom.


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Filed under Economics, government, Politics

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