Also see Feb. 17, 2010 article:
Fannie, Freddie Ordered Off Risky Debt in New Goals
Grumblings are becoming louder about what’s missing from President Obama’s or Capitol Hill’s financial system reform proposals – mainly, any plan to address Fannie Mae and Freddie Mac, and the future of housing market stability.
Not having a strategy on housing reform could mean an unabated foreclosure crisis and a possible repeat of the mortgage bubble that burst into the deepest recession in decades, say proponents of permanent reform of Freddie and Fannie.
The two stockholder-owned corporations were created by Congress for the purchase and securitization of mortgages, providing liquidity to the housing sector and, in turn, to the U.S. economy. That mission has seriously gone astray in recent years.
The two mortgage giants have been under the government’s “conservatorship” since mid-2008, and President Obama’s fiscal budget proposal for 2011 only mentioned the two corporations would be “monitored,” with possible detailed reform plans coming later.
That passing mention drew the ire of The Washington Post, which blasted the administration’s lack of a strategy.
“This is alarming,” the Post wrote in an editorial yesterday. “The Fannie-Freddie business model — “government-sponsored enterprises” (GSEs) …promoting homeownership — is a proven loser. In fact, Fannie and Freddie were in large part responsible for inflating the housing bubble that burst so disastrously in 2007.”
The Post echoes the sentiments of many lawmakers from both parties, as well as fiscal conservatives and banking regulators, when it wrote that the United States cannot afford the “indefinite de facto nationalization” of housing finance.
The administration estimates that the Fannie and Freddie’s losses will cost the government more than $54 billion in fiscal 2011, and another $23 billion in fiscal 2012, the Post said. The entities’ debt totals more than $1.6 trillion, on top of the existing national debt of $12.3 trillion.
“Moving to a new model of mortgage finance is not easy because it provokes resistance from the old system’s stakeholders, who range from mortgage bankers to home builders to housing affordability advocates,” the Post wrote. But “Congress and the Obama administration need to set clear, consistent and sustainable limits on federal support for mortgage finance, and the sooner the better.”
In an interview with Reuters today, St. Louis Federal Reserve Bank President James Bullard said overhauling the U.S. housing finance system should be a centerpiece of regulatory finance reform.
“Fixing the U.S. housing market should be one of the main focuses of regulatory reform legislation, and instead we are kicking the can,” Bullard told Reuters.
What is so clear to us all now escaped the grasp of so many brilliant, well-intentioned policy makers, senators, congressmen, private citizen, and, indeed, the all-seeing eye of the capital markets: That when you arm men with the sacred tools of public finance, men, who by their nature and by, ironically, dint of market discipline itself, will seek to maximize personal power and wealth, then, you will have created machineries of greed protected forever more by the cloak of legitimacy of public purpose. These machines were Fannie Mae and Freddie Mac.
Within their worlds, trust that the highest ranking managers within both organizations continue to be impervious to the rest of the world’s reality. They cannot be reformed, for they are not mere things, they are people, people who have been entrenched in well-rewarded laziness for decades. It was the supreme form of laziness to operationalize sub-prime loan production en masse. It would, by far, been harder and required actual ‘work’, research, and experimentation to conceive of new products, financial and operational innovations to promote affordable housing and home ownership legitimately.