Yesterday, Massachusetts Representative Barney Frank, chairman of the House Financial Services Committee called for the dissolution of mortgage giants Freddie Mac and Fannie Mae, saying “they should be abolished. The only question is what do you put in their place?”
Frank continuted “There is no more hybrid private-public. If we want to subsidize housing then we could do it upfront and let the budget be clear about that”. Frank emphasized that whatever replaces Fannie and Freddie should be self-financing.
Fannie Mae and Freddie Mac were seized by the federal government in 2008. Since that time, the Obama Administration has pledged unlimited capital (taxpayer money) to backstop the agencies. Thusfar, $150 billion has been poured into Freddie and Fannie. The Congressional Budget Office estimates the total bailout will run around $400 billion, whilst others say it will cost closer to $1 trillion dollars (that’s twelve zeros, people). Bear in mind that the bailout of Fannie and Freddie is in essence a backdoor bailout of banks that made risky loans.
Frank also commented that “public policy has been too much to try to push people in homeownership”.
I agree with much of what Frank is saying, but you will notice that he doesn’t say anything specific. I have yet to see a real viable, specific plan as to how we should deal with mortgage subsidies, Fannie, and Freddie from either Democrats or Republicans. Most of the policy makers in Washington seem to speak in trite generalities, seemingly designed to offend nobody while simultaneously saying little. It’s kind of like saying “we need to cure cancer. The only question is how do we do it?”
It would be great if we could have an actual public discourse about housing and the wisdom/efficacy of subsidizing homeownership, but I suspect we will spend most of our time on some sort of quixotic run-around, tilting at windmills.
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