Barney Frank says abolish Fannie and Freddie?

Posted by Jason | Posted in Government | Posted on 23-01-2010

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Don’t we wish? That’s not quite what he said. He wants to close them down and create a new housing system from scratch. Can you imagine if every time you completely screwed up at work, you just went to your boss and said “We should just abolish the disaster I created and start from scratch. I know exactly how to do it. Oh, don’t worry that I completely destroyed the company with my last attempt and kept telling you to pour more money into that disaster all the while telling you it was going great.” Here an article from the Wall Street Journal about Frank’s comments.

A top House Democrat on Friday said his committee was preparing to recommend “abolishing” mortgage-finance giants Fannie Mae and Freddie Mac and rebuilding the U.S. housing-finance system from scratch.

“The remedy here is…as I believe this committee will be recommending, abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance,” said Rep. Barney Frank (D., Mass.), the chairman of the House Financial Services Committee.

His comments initially rippled through bond markets on concerns that the government might pull away from the mortgage market. Many believe that’s unlikely and that any revamp would include continued government involvement. The government took over the companies in September 2008 as loan losses mounted.

Please. The government would never pull away from the mortgage market. It’s just another way for them to buy votes and redistribute wealth. There is only one reason that the government needs to be involved in the house financing system. That is to force the cost of buying homes for a select group of people onto the population as a whole. When I go to a local bank and get a mortgage, the bank will charge a high enough interest rate to make it worth it for them to lend me the money. If the rate is too high, I’ll pass. If I think it is just right, I’ll borrow and buy a home. We both win. No one else is forced to pay for my home.

Now, how does the government change this? Well, they artificially lower interest rates and standards to allow otherwise unqualified buyers to buy homes. The cost of money has not changed just because the government wants it to. Someone has to pay the difference between what it normally would cost to borrow at the buyers interest rate and the artificial rate the government sets. That someone is the tax payer. As with all government handouts, they spread the cost of a select few over the entire populace.

Some Republicans have argued that the companies should ultimately be reduced in size and privatized, while at other end of the spectrum, some analysts have recommended turning the companies into government agencies. But several industry groups and academics have suggested that the government is likely to continue playing at least some role in the future of the companies.

One such report came from analysts at Standard & Poor’s this past week. “It’s hard for us to imagine” how enough capital could be attracted to replace Fannie and Freddie with stand-alone private companies that would be able to offer low-cost funding for 30-year fixed-rate mortgages, the analysts wrote.

Thanks Standard & Poor’s! It’s hard to imagine because you are trapped in our currently reality. Capital will be attracted if it is rewarded properly by the market. If interest rates are allowed to be set by the market instead of being set by our economic emperors, capital will come. Of course they stipulate “low-cost funding”, which goes right back to forcing the cost on all tax payers.

Some analysts have argued that starting from scratch could create more problems than they would solve, in part because Fannie and Freddie own or guarantee around half of the nation’s $11 trillion in home mortgages. “Blue sky ideas are great, but they take a long time to happen,” said Mahesh Swaminathan, senior mortgage strategist at Credit Suisse, at a conference last month. “When you have $5 trillion of agency mortgages, you can't really orphan them.”

Here’s an idea. Don’t start from scratch. We are in a hole, so stop digging. Discontinue all future operations, and either let the current mortgages pan out (foreclose, payoff, etc) or sell off the mortgages to the highest bidder. We’ve already been screwed by the government here, so get it over with and quit dragging it out. At least then we’d be on a path to the free market. By the way, did anyone find the clause in the Constitution that says the Federal government can even be involved in housing finance. Yes Mrs. Pelosi, I’m serious.

Mr. Frank, who didn’t elaborate on forthcoming recommendations, said last month that one possible revamp could merge some functions of Fannie and Freddie that overlap with the Federal Housing Administration into the government mortgage-insurance agency.

The Obama administration said it will weigh in on how to revamp the companies—and the entire housing-finance system—when it releases its budget next month. Republicans have increasingly criticized the administration for moving to overhaul the financial sector without spelling out plans for Fannie and Freddie.

In a PBS interview on Thursday, Treasury Secretary Timothy Geithner said the legislative process to overhaul Fannie, Freddie and the housing-finance system was unlikely to begin this year. “It’s just a complicated thing to get right,” he said. “But we are completely supportive and agree completely with the need to make sure that we take a cold, hard look at what the future of those institutions should be in our country.”

via Fannie Mae, Freddie Mac Should Be Eliminated, Barney Frank Says – WSJ.com.

Thank God Geithner and Obama will weigh in on this soon. They have just been so great up to this point on economic matters.  I am sure our socialist President will come up with a great market based system, right? Be ready for a new welfare program, created from scratch by the most socialist government we’ve had in my life time.

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Comments (2)

I like your idea of stopping the digging, and selling off the mortgages to the highest bidder. Some mortgages would lose the gov money and others would win, so hopefully we’d just break even, but you should know better: once the gov gets into an industry, it’s nearly impossible to get them out. Gov spreads like a weed, pushing until it cracks the foundation of another industry and gets involved there.

What’s gov-strength weed killer?

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John,

Hopefully, it doesn’t ever come down to it, but I think the only weed killer is the second amendment.

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