Feature

Leave housing finance to the private sector

“The government made a huge mistake guaranteeing mortgage-financing giants Fannie Mae and Freddie Mac,” to the tune of $150 billion and rising, said Daniel Indiviglio in TheAtlantic.com.

Daniel IndiviglioTheAtlantic.com

From the cacophony of postmortems on the financial crisis, one clear point of consensus emerges, said Daniel Indiviglio. “The government made a huge mistake guaranteeing mortgage-financing giants Fannie Mae and Freddie Mac,” to the tune of $150 billion and rising. Defenders of the status quo say the ongoing disaster offers opportunities to learn and improve. But critics say the best way for government to improve home finance is to leave it to the profit-making sector.

The private sector, unlike the government, has ample incentive to reduce the risk of mortgage lending. If a private lender makes too many bad loans, it fails. Washington just borrows more money and hopes the voters forget by the time the next election rolls around. And private lenders don’t have to worry about the political fallout from denying a mortgage to a member of a powerful constituency. “They can pick winners based on economics.” Government interference in private markets can be justified if it benefits the public. Sticking U.S. taxpayers with the tab for the housing crisis fails that test.

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