Five Reasons Obama Won’t Touch Fannie or Freddie With a Ten-Foot Pole
Long before the financial crisis, Fannie Mae and Freddie Mac were synonymous with moral hazard in the minds and classrooms of most economists. Everyone (including Fannie and Freddie) believed that if they got into trouble by making risky investments, the government would bail them out. Of course, the feeling that they wouldn’t be allowed to fail led to them making risky investments and then, naturally, to a government bailout.
But unlike most of their private sector counterparts, Fannie Mae and Freddie Mac — and the half of the U.S. housing stock that they either own or back — are still owned by the federal government, and despite the administration’s promises, Zachary Goldfarb of The Washington Post says they’re going to stay that way. Why?
- The administration is “too busy” with other reform efforts.
- The administration has little desire to wade into another political screaming match this close to an election.
- Wall Street thinks it could destabilize the housing market even further.
- The administration plans on using Fannie and Freddie as part of its ongoing efforts to prop up the housing market.
- Fannie and Freddie have been behind the majority of mortgages made since the housing crisis began.
Of course, critics of Fannie and Freddie and the moral hazard they embodied have been calling for reform for years, to little avail. If, in the midst of government ownership and $125 billion (and counting) in bailout money, the administration can’t reform them now, it never will — and that’s likely just what Fannie and Freddie are counting on.