A debate is breaking out in Washington over how and when the government should reform beleaguered mortgage finance giants Fannie Mae and Freddie Mac. Treasury Secretary Timothy Geithner told Congress last week that the administration still has to "take a fresh, cold, hard look at the core problems" that nearly ruined Fannie and Freddie before unveiling a reform plan, which is expected next year. But some Republicans want the administration to immediately start phasing out the institutions, which the government took over as they crumbled during the housing meltdown. Are Fannie and Freddie worth saving?
Propping up Fannie and Freddie only makes matters worse: "Fannie Mae and Freddie Mac are the poster children for what is wrong with 'state capitalism' or economic fascism,'" says Richard W. Rahn in The Washington Times. These government-backed behemoths helped cause the mortgage crisis with their "unsound financial practices," then, instead of letting them go bankrupt, the government bailed them out. As long as the government props them up, the "bad practices" will continue.
"The necessity of failure"
Getting rid of them is risky: "Privatization would get bureaucrats out of the thorny area of housing finance," says Brian Wingfield in Forbes, but, as we have learned the hard way, private banks sometimes need bailing out, too. So cutting the government's ties to Fannie Mae and Freddie Mac won't "resolve a hallmark problem of the financial crisis: how the government deals with a firm that's considered too big to fail."
"What to do about Fannie and Freddie"
Nuking Fannie and Freddie won't change anything: The problem with Fannie and Freddie was their unique relationship with the government, says David Indiviglio in The Atlantic. As "government-sponsored mortgage entities," they got all the profits from their business, and taxpayers assumed the risk. Timothy Geithner is on record saying that has to change, but reform will have to wait, because doing it now would rattle the housing market further before it has had the chance to stabilize.
"Geithner provides philosophy, not a plan, on Fannie and Freddie"
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