Winding Down the FM’s

Gee, it only took him five years to get where everybody else was:

[President Obama] proposed to “wind down” Fannie Mae and Freddie Mac, for the first time outlining his approach to overhauling the two giant mortgage-finance companies that were taken over by the government when they failed nearly five years ago. The companies, which Mr. Obama described in an appearance here as “not really government, but not really private sector,” recently began to repay taxpayers.

Since early 2011, the administration has voiced support for overhauling Fannie Mae and Freddie Mac, which long benefited from an implicit government guarantee. Years ago the companies came to symbolize a self-dealing Washington culture beneficial to both parties, and especially Democrats, but Mr. Obama’s remarks on what comes next were his most specific. For several years, the administration held back from revamping the mortgage-finance system for fear of rattling a weakened market.

Mr. Obama on Tuesday endorsed the thrust of bipartisan legislation from a Senate group that would “end Fannie and Freddie as we know them.” The so-called government-sponsored enterprises for decades bought and sold mortgages from financial institutions to provide money for the banks to keep lending to home buyers.

Under Mr. Obama’s principles, which he said were reflected in the Senate bill taking shape, Fannie Mae and Freddie Mac would further shrink their portfolios and lose the implicit guarantee of a federal government bailout. Instead, private investors would be most at risk, with the government a secondary guarantor.

I would prefer to do away with them all together, but shrinking them and ditching the government guarantee would be a good first step.

Still, it’s worth pointing out that conservatives and libertarians were mocked and jeered for years when they called for precisely this policy. In fact, we were branded as economic idiots when we called for reforming the GSE’s before the financial crisis hit. I guess acknowledging the deep problems created by the GSE’s is OK now that Democrat is doing it.

Comments are closed.

  1. AlexInCT

    My bet is that the “Wind down” will translate into government taking full control of these entities, so they can do even more wealth redistribution, rather than removing government from the picture. Buyer beware.

    Thumb up 3

View Mobile Site