What to do with Fannie and Freddie

Compared to other countries, Fannie Mae and Freddie Mac were and are unique features of U.S. housing finance. They once made U.S. housing finance, according to their own pre-crisis publicity, “the envy of the world.” In those days, Fannie and Freddie were accustomed to being the stars and darlings of both Washington and Wall Street — or more precisely, being a darling of Washington made them a star of Wall Street. Fannie in particular was also a greatly feared bullyboy both in Washington and on Wall Street, and most politicians and bankers were afraid to cross or offend it.

Perhaps drunk with power, hubris, the free use of the U.S. Treasury’s credit, and nearly unlimited command of other people’s money — domestic and international — Fannie and Freddie became major perpetrators of the housing bubble, running up the leverage of the housing finance sector, inflating house prices, escalating systemic risk, and making boodles of bad loans and investments.

As in a Greek tragedy, their hubris led to humiliation. Both went utterly broke, greatly embarrassing their political cheerleaders and allies, including Senator Chris Dodd and Congressman Barney Frank (the chairmen of the respective congressional banking committees), but their taste for using other people’s money did not abate. They lost all the profits they had made for the previous 35 years, plus another $150 billion. These enormous losses were foisted on the innocent public, while the government made sure that their creditors, domestic and foreign, were paid every penny on time. Large additional losses to the public are the deadweight bureaucratic costs of the Dodd-Frank Act, sponsored by the aforementioned former political cheerleaders.

Read the full text of the article on The American.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Alex J.
Pollock

What's new on AEI

AEI Election Watch 2014: What will happen and why it matters
image A nation divided by marriage
image Teaching reform
image Socialist party pushing $20 minimum wage defends $13-an-hour job listing
AEI on Facebook
Events Calendar
  • 20
    MON
  • 21
    TUE
  • 22
    WED
  • 23
    THU
  • 24
    FRI
Monday, October 20, 2014 | 2:00 p.m. – 3:30 p.m.
Warfare beneath the waves: The undersea domain in Asia

We welcome you to join us for a panel discussion of the undersea military competition occurring in Asia and what it means for the United States and its allies.

Tuesday, October 21, 2014 | 8:30 a.m. – 10:00 a.m.
AEI Election Watch 2014: What will happen and why it matters

AEI’s Election Watch is back! Please join us for two sessions of the longest-running election program in Washington, DC. 

Wednesday, October 22, 2014 | 1:00 p.m. – 2:30 p.m.
What now for the Common Core?

We welcome you to join us at AEI for a discussion of what’s next for the Common Core.

Event Registration is Closed
Thursday, October 23, 2014 | 10:00 a.m. – 11:00 a.m.
Brazil’s presidential election: Real challenges, real choices

Please join AEI for a discussion examining each candidate’s platform and prospects for victory and the impact that a possible shift toward free-market policies in Brazil might have on South America as a whole.

Event Registration is Closed
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.