On Freddie and Fannie.

[randomness]

What's lost in all the handwringing over Freddie Mac and Fannie Mae was that from the start they were entities created for the express political purpose of manipulating the housing market. They exist in order to promote what later became called "the ownership society", as a way to fight socialism. Putting more people into houses as owners means more people who have a stake in the defense of private property and of capitalism. Arguably, this was quite effective.

However, it cost money. Now, the bill is coming due. Who pays the bill--and how they pay it--those are the real issues, not why and how the money was spent. They spent the money fighting socialism.

It's therefore rather ironic that rather than see Freddie and Fannie fail, a self-described conservative government has decided ideology be damned. The government must take these outfits over lest they collapse and take down the housing market and the credit market with them, rather than let the market sort everything out, as their ideology would have it.

Of course they're trying very hard to obfuscate all this, rather than have people ask the awkward question of why the fight against socialism, and those who gained from it, should be bailed out by socialism.

Do I think we should prevent a collapse? Yes. Spending some money to engineer a graceful outcome and avoid a chaotic crash is worthwhile. Do I think the taxpayer should be the one to pay for that graceful outcome? No.

We'll see who ends up paying the bill.

Comments

[r-ness.livejournal.com]

Agreed.

Paul Krugman says this better than I can. From http://krugman.blogs.nytimes.com/2008/09/08/deprivatization/:

The fact is that Fannie Mae was originally a government agency; it was privatized in 1968, not for any good economic reason, but to move its debt off the federal balance sheet (and Freddie was created 2 years later as a competitor.) Private ownership of Fannie and Freddie never made any real sense, and was always a crisis waiting to happen.

Is it weird that you find yourself agreeing with the Economist? (I mean that as an actual question, not to make a rhetorical point.)

[julianyap.livejournal.com]

No, no, I agree with the Economist about half the time actually, since I'm fairly moderate on many issues. What I thought was weird was that The Economist was advocating nationalization. They've tended to fall into the "Deregulation and the market will solve everything!" school of thought for a while now

[cerebralpaladin.livejournal.com]

There is a whole school of thought (Tyler Cowen posted about this on Marginal Revolution) that basically amounts to: the GSEs were a terrible idea that should never have existed, even in their fully governmental form; but since they exist and their abrupt total failure would devastate the world-wide economy, deprivatization is the best way out of a bad mess. It seems to be pretty popular among economically savvy libertarians.