Abolish Fannie Mae and Freddie Mac? Not So Fast!
Abolish Fannie Mae and Freddie Mac? Not so fast! The Obama administration has recently announced that they are planning to get rid of Fannie Mae and Freddie Mac and turn the responsibilities of these government sponsored enterprises (GSE's) over to the private sector. The reasoning they gave is that they have failed, which is true and they have lost alot of money, which is also true. What they are not focused on is the vital role that these entities play in the role of promoting homeownership in our economy.
They both have been grossly mis-managed, this is true. Normally, I am a big fan of privatization for efficiency reasons primarily and I am not a big fan of government control most of the time. In this case, I am totally opposed to what the Obama administration wants to do at this point in our history. We are in the middle of a housing crisis and a resulting deep recession. All deference given to the green sprouts that economists have seen lately indicating a recovery that is lackluster at best. Take a moment and think about how we got here. Fannie and Freddie did not cause this crisis and should not be blamed entirely for it. Did they have a hand in it? No doubt. But let's be honest here, the very same group of companies that have not only survived this crisis, but consolidated power and have made unreal amounts of money because of it are significantly responsible for the crisis to start with! Remember subprime mortgages that were bundled by wall street firms and rated incorrectly by wall street rating agencies? Remember mortgage backed securities that were sold by these wall street firms that then became worthless? Remember credit default swaps and derivatives? Wall street is like the fox watching the hen house and now we are going to entrust them to run our mortgage secondary markets? This is a wrong move on many levels.
In the name of profit and needing more products to sell and leverage, wall street went to work several years ago, due to legislation that was passed in the middle of the night during the last days of the Clinton administration, selling derivatives and credit default swaps that turned out to be worthless in the end and we, the taxpayers had to take over several companies to make good on those securities to many wall street firms. Do you remember the congressional hearings where one wall street firm's executives admitted to covering or hedging the "s*%t" mortgage backed securities they sold to investors? Meaning, of course, that they knew these securities where junk or likely to fail. So, they don't tell the investor what they think about the security, they sell it to them and then they take out hedge positions that bet against the very securities they just sold to the investor! When pressed, they told congress that the investor must be aware of the risk they are taking! Just so we are clear, this is not an indictment of any one wall street firm, but the system they are a part of! There are many companies that are a part of this flawed system. The Obama administration wants to put these types of firms and their system in charge of our promotion and ad vocation of homeownership? Not so fast!
There have been many reports released over the years about how much of this country's net worth is real estate, most are right around the 75% figure. There have also been many reports over the years indicating the impact that real estate has on our economy, many have found that real estate is one if not the most important economic generating machine in our national economy. Homeownership is still the American Dream and not withstanding the crisis we are in now, it is still one of the best opportunities our great country affords us! When was the last time you visited a neighborhood that is dominated by homeownership and then visited one that is not? Which one has more opportunity? Which one is more preferable to live in? Unfortunately, until we come up with a better solution, I believe the government should continue to be involved in this vital part of our economic recovery and expansion for the foreseeable future. I agree, we need to hire better, more professional managers and not political heavy weights that are connected, but might not be the right person for the job.
Thank you for your time.