I wrote a post a little while ago about what I perceive as "spoiling the market". Stop the crying or cry it out? Take a look... It isn't specifically about the Fannie/Freddie bailout, but this is.
So, what about Fannie and Freddie?
They can't be allowed to fail. It is pretty simple. But, not for the reason that most real estate agents, most mortgage originators or our respective trade organization say. It isn't because of the "damage" it would do to the housing market... and it would do damage. And it would damage me personally...
The reason is the simplest one there is. A 6 year old can tell you why... The Federal Government of the United States said that they weren't going to let them fail. They told investors for years that they were back-stopping the GSEs (Government Sponsored Entities). Both implicitly and explicitly. Out loud and in private.
Just like in real estate, the contract IS the contract. Just like a Boy Scout, you do what you say you are going to do...
Next?
Now, this is where there needs to be a real discussion. What happens next?
I don't think that the GSEs should have been allowed to grow to the size they did. I don't think that the government should have been competing with private interests. Simply put, if there were going to be Fannie Maes and Freddie Macs, they should have been severely limited to a very specific niche...
Simply put, I don't think the government should revamp another quasi-governmental agency/private corporation hybrid to compete in the same space. Part of cleaning up the mess should be to make sure it doesn't happen again.
And let me be clear... I think that there were all sorts of shenanigans going on that led to the actual crisis... but they aren't the basic cause of the crisis. What caused the crisis we are having now is that they existed.
Look at where we are. There are two companies that do largely the same thing... both are largely owned by the government... yet the government can't profit from them. Between them they own or back $12,000,000,000,000 in mortgages... almost half of the mortgages in the country. Obviously they are the dominant players.
Instead?
No "private" company would be allowed to get that big without being broken up by some sort of anti-trust action (except TicketMaster...). Think about it. What if Bank of America had half of the checking accounts? What if Ford made half of the cars? What if Microsoft made half of the Operating Systems for computers... oh, wait... they do... and they are always looking over their shoulder at the anti-trust lawyers.
If instead there were 200 smaller companies... not backed by the Fed... they would be able to react more quickly, and it one or several failed, they would be more easily absorbed.
Downside?
Of course there is a downside. Mortgages might be a little tougher to come by since they would be backed by the credit-worthiness of the borrower and the value of the property rather than the pockets of taxpayers. Rates might tick up a little to account for risk. But on the other hand, the country's most corrupt Board of Directors (spelled C-O-N-G-R-E-S-S) wouldn't be running things. Instead, they would be looking to get headlines by "exposing the wrong-doing" and protecting their donors constituents.
But instead of looking for ways to make the government smaller, there are a lot fo calls to make it bigger and more invasive. Instead of looking for ways to let capitalism work, there are calls for more Fascism... And yes, I mean to use that word... in its proper context.
Fascist governments nationalized key industries and made massive state investments. They also introduced price controls, wage controls and other types of Soviet-style economic planning measures.[12] Property rights and private initiative were contingent upon service to the state.[13].[14] Fascists promoted their ideology as a "third way" between capitalism and Marxian socialism.[15]
Alarmist?
You know what? I sure as hell hope that I am hanging off the deep end. I would sure like to not think that there are people that WANT to nationalize industries in the United States. I would sure not want to think that any of those people are able to get elected to high offices by people that have no idea what fascism actually is...
I hope you stuck around for the end of that little gem...
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