Human Events | Brian Darling | July 21, 2008
Sen. Jim Bunning (R-Ky.) has pledged to block a Bush administration proposal being steamrolled through Congress to grant the Treasury Department and the Federal Reserve sweeping new powers. Slowing things down would allow Congress to debate the issue fully before approving measures that could put taxpayers on the hook for billions in debt incurred by Fannie Mae and Freddie Mac, the government-backed home-mortgage giants.
Fannie and Freddie are government-sponsored enterprises, or GSEs. They are stockholder-owned corporations that were chartered by the federal government to buy and package home loans and make loan guarantees. Fannie Mae was founded in 1938 as part of President Franklin Roosevelt’s New Deal and has since been converted into a private corporation.
Treasury Secretary Henry Paulson last week testified before Congress and requested swift legislative action to expand the Treasury’s ability to lend to these two troubled GSEs and to allow the department to buy stocks in them if necessary. Bunning was stunned: “When I picked up my newspaper yesterday,” he said at a Senate hearing, “I thought I woke up in France. But no, it turns out socialism is alive and well in America. The Treasury Secretary is asking for a blank check to buy as much Fannie and Freddie debt or equity as he wants.”
Politicians sometimes try to solve problems by providing no-cost guarantees, but the S & L debacle showed that this type of government intervention actually subsidizes excessive risk and leads to taxpayer bailouts. Without true reform of the GSEs, the Bush administration’s plan to expand a risky form of government intervention by putting taxpayers at risk for future bailouts of investment banks would be unwise. A Fannie and Freddie bailout might be worthwhile if that was the price we paid to privatize these reprehensible examples of crony capitalism. But if this proposal merely keeps Fannie and Freddie unreformed, the taxpayers will lose in every possible way.
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A bit of an explanation as to how and why this all happened:
In other words, we had thousands of “house flippers” slapping some paint, granite countertops and new flooring into a house and turning it around to sell it at a profit of three to four times what they put into it, and people were buying!
Throughout all of this, I stood back and wondered where people were finding lenders to back loans that they obviously could not afford. While I feel badly for those caught in this mess through no fault of their own, we essentially created this through a mentality of greed. We “had to have” a house that we know will place our budgets within razor-thin margins of comfort, if not beyond.
People are not looking long term: home prices are still overpriced in many areas of the country in comparison to the median incomes of those areas. Prices have, overall, gained in value (if one looks over the past decade instead of just the last year). For those who can wait, they need to sit it out. My 401K took a dive as well, but I expect it to eventually creep up again.