Now is the Time to Shut Down Fannie Mae and Freddie Mac
Do we need to let them continue to lose money?
With the shift in the power in Washington, we can look for a change in Fannie Mae and Freddie Mac organizations.
In a recent Forbes Magazine article, the question was asked "How does the US government stop subsidizing perennial problem children Fannie Mae and Freddie Mac but continue to support access to affordable home loans?" After all, during the recent report period, Freddie Mac stated it only lost $4.1 billion in the third quarter but they requested an additional $100 million to total $64.2 billion owed to the Federal Government (we the people). Now, Fannie Mae results were better in that they only lost $1.3 billion for the third quarter.
If you remember, there were several lawsuits relating to some questionable accounting practices when the wheels fell off the free wheeling loans which were written during the housing growth. Those have now been settled but can we trust the actions and accounting practices of these units.
When the US government took these two over in 2008, Secretary of the Treasury Henry Paulson indicated "Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe..... because the GSEs (Government-Sponsored Enterprises) are Congressional-chartered, only Congress can address the inherent conflict of attempting to serve both the shareholders and a public mission." Tough question: Should we allow them to fail?
Now the newly elected Federal Government Officials must address these entities so they do not continue to cause we the taxpayers to support their errors. One of the quickest ways to straighten out the housing mess is to straighten out the GSE mess. We know that there are a number of interested parties who want to be heard in the discussion of what to do with these two. All the financial institutions (Wall Street, banks, loan companies, realtors, and real estate investors) have a vested interest in what is to be done. It will be a sticky wicket as it has the potential of being more bloody that the healthcare program.
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