Who’s to blame over Fannie and Freddie?
I’m sure Nancy Pelosi has given the “Fannie Mae and Freddie Mac are yet another example of the failed Policies of George Bush”. Haven’t seen it in print, but I’m sure she’s just figuring the time and place to say it. Everything that happens, according to her and Harry Reid, are Bush’s fault. But, what is the root of the problem here? Let’s dig DEEPLY, shall we?
According to a site called Allie Mae:
Federal government establishes Fannie Mae to expand the flow of mortgage money by creating a secondary market. Fannie Mae is authorized to buy Federal Housing Administration (FHA)-insured mortgages, thereby replenishing the supply of lendable money.
That was in 1938. The President was a Democrat, Franklin D. Roosevelt. He was dealing with The Great Depression and how to get the economy moving again. At that point, it’s mission was limited very tightly. As such, it was set up as a Government Sponsored Entity. I call the quasi-government agencies. I like neither. They serve a purpose for a very limited scope of time and then should be dissolved when that situation corrects itself. However, they seldom are because the mission is so politically appealing. The problem in 1938 was there was no single source of liquidity to prop up the market and get the construction moving. That was Fannie Mae’s intent. However, over time, the economy exploded, the private sector took off like a rocket, and by 1968 there was enough liqudity to handle the market. There was not, and still isn’t, any one entity large enough handle buying out Freddie, Fannie, Ginnie, or the rest. So, the golden egg laid by Roosevelt became the giant dragon no one could contain.
In 1944 Fannie Mae’s scope was expanded to cover Veterans’s homes. Again, that was done under Roosevelt.
In 1954 Fannie Mae was allowed to sell private stock. It was at that point that, in my point, it no longer served it’s original purpose and should have just been converted to a totally private company, OR, a government agency. The President that year was a Republican, Dwight D. Eisenhower.
So, that’s two strikes against Democrats, one Republican. I don’t consider the fully expected crisis intervention by Bush to be part of the mix since it was pretty well expected for a long time. But, that’s not all there is to this picture.
The other cog in this situation is Freddie Mac. Based on the exploding popularity of Fannie Mae, it was created in 1970 to, I guess, compete with Fannie Mae. Another strike against the Republicans?
Is that all? Nope.
Everyone is ignoring Ginnie Mae, created in 1968. Democrats 3, Republicans 2 by traditional thinking.
But, it’s not quite that simple either.
Congress established these legal messes, not the president. So, let’s look at how that pans out:
- 1938: Created: Democrats controlled the House
- 1944: Expanded: Democrats controlled the House
- 1954 Partially private: Democrats controlled the House
- 1968: Ginnie Mae: Democrats controlled the House
- 1970: Freddie Mac: Democrats controlled the House
- 2008: Fannie and Freddie collapse: Democrats control the House
QUICKIE UPDATE: 09/13/08:
Connie Mack penned a comment on The Hill Blog. Now, he states that Republicans should denounce the Fannie/Freddie takeover as expanding big government. He’s 100% right. However, IMO, he’s 35 years too late. It has been a part of the government since its inception. It was just one of those “quasi” agencies that has the protection ( read abuses ) of federal government, while competing against the private sector. The only reason there was no high-risk rating system in place to thwart the disaster that has been the last two years is because the private sector just passed the risk to the Fannies and Freddies. They served their purpose pulling the country out of the Great Depression. However, by 1968, the market was thriving. They no longer served their purpose and should have been quietly shut down to allow the private financial sector to gauge risks on their own.
So, I agree with Connie Mack’s argument. However, since he waited so long to make the argument, and waited until the financial sector could not, nor would not accept the weight of the risk that Fannie and Freddie had assumed, there was no other option. If they did just allow Fannie to collapse, we’d be in the same situation that caused their inception in the first place.