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Bailout: When the federal government plays mad scientist, it doesn't destroy the monster it realizes it's built. Instead, after wreaking global economic havoc, Fannie Mae gets the taxpayers' blank check.
The Federal National Mortgage Association, "Fannie Mae," a mutant hybrid with the worst features of government agency and private business, holds about $6 trillion in mortgages. Now it wants another $8.4 billion in cash.
More largesse for Fannie and its equally evil twin, the Federal Home Loan Mortgage Corp., "Freddie Mac," is like emptying a dump truck full of taxpayer cash down a bottomless pit.
In its 12th straight quarterly loss, the mortgage behemoth consumed $11.5 billion in this year's first quarter. That's an improvement: A year ago, Fannie lost twice as much.
Why would American taxpayers pay billions to keep these monsters alive? As the Manhattan Institute's Nicole Gelinas points out in "After the Fall," her book on how to save capitalism after the 2008 disaster, "Fannie and Freddie used their considerable power both to bribe and to intimidate politicians and the media; but their unique power to do so came from their carefully preserved apple-pie image as every homeowner's friend."
It's some mighty expensive apple pie: Late last year, the Obama administration raised Fannie and Freddie's $400 billion borrowing cap, handing the two government-sponsored enterprises (GSEs) a blank check signed by Uncle Sam.
FDR established Fannie in 1938. As Cato Institute senior fellow Johan Norberg describes its later mutation in his recent book "Financial Fiasco," "In 1968, private stockholders were allowed to take stakes so that Fannie Mae would not have to be recorded as an expenditure in the federal budget, which was already weighed down by the Vietnam War and burgeoning entitlement programs."
Fannie bought and bought mortgages from lenders, who then could make more mortgages; Fannie would often then sell mortgages, allowing it to buy still more loans.
As Norberg writes, "A GSE is potentially the most dangerous type of enterprise since it may allow private owners to take any risks they can imagine, pocket any profits for themselves, but count on taxpayers to take care of any losses."
Federally guaranteed, Fannie and the other mortgage GSEs lent at ultralow interest rates and enjoyed reduced capital requirements and an exemption from state and local taxes, unfair advantages giving them about half of the U.S. mortgage market.
In the mid-1990s, Bill Clinton added a "Trillion Dollar Commitment" to give homes to 10 million poor Americans, then juiced up Jimmy Carter's Community Reinvestment Act to pressure banks to lend to the unqualified in the name of social and racial justice.
In the new book "How Capitalism Will Save Us," Steve Forbes and Elizabeth Ames describe the obvious solution: "Breaking up Freddie and Fannie into smaller private mortgage entities would eliminate the market distortions created by these two giants; it would open the field to new companies that would not have to fear having to compete against the U.S. government."
Destroy this destructive, cash-consuming monster. Don't feed it.
Bailouts: The European Union's answer to members' profligacy has a familiar ring: Create a $1 trillion fund that can be used to prop up failing economies. Sounds a lot like TARP to us. European officials are employing the same strategy as the U.S. to deal with their burgeoning crisis. But ...
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One of the many fashionable notions that have caught on among some of the intelligentsia is that old people have "a duty to die," rather than become a burden to others. This is more than just an idea discussed around a seminar table. Already the government-run medical system in Britain is ...
War On Terror: The world's most dangerous man — Anwar Awlaki — just got more dangerous with news he also inspired the Times Square terrorist. More must be done to take out this menace. The U.S.-born Muslim cleric, who's believed to be al-Qaida's top recruiter in the West, also ...
As more details emerge about the massive 2,700-page health overhaul law, even those who supported its passage are shocked by its sweeping implications and reach into every corner of our lives and society. For example, small-business owners are telling members of Congress they are terrified about ...
Posted By: jpdwn(540) on 5/11/2010 | 1:06 AM ET
All bad government institutions start off as "good". Bear in mind that they are all monopolies and subject to all the evils of monopoly. Think Fannie and Freddie operate unfair trade practices? Think the government is the only institution with the coercive power to allow them? Limited government anyone?
Posted By: InCincy(365) on 5/10/2010 | 10:01 PM ET
Fannie-Stein was a once useful organization, ruined by politicians and turned into tool of patronage. Now, it may be too big to fail. Thank goodness that it was not run by scoundrels like AIG or Lehman or Bear Sterns.
Posted By: Houston Rao(520) on 5/10/2010 | 8:33 PM ET
"concerned", not conservatives, but constitutionalists, which will automatically shrink government and bring conservative minded people to the fore.
Posted By: concerned(1230) on 5/10/2010 | 7:20 PM ET
"Destroy this destructive, cash-consuming monster. Don't feed it." There's no point in asking Democrats to do this since, for them, Fannie and Freddie are indispensible tools to cozen the political support of uncreditworthy constituents. You have to replace them with Conservatives first.
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