Some believe that tighter regulation is the answer. I am skeptical of that because I know the extent to which the regulatory system is tied up in Fannie’s and Freddie’s political activities. I find it deeply troubling that Fannie and Freddie, essentially in receivership to the secretary of the Treasury today, continue to employ lobbyists and hand out campaign contributions to influence the legislative debate over their own futures. Fannie and Freddie paid out more than $170 million to lobbyists over the last decade — more than General Electric spent. Government departments cannot hire lobbyists or give money to campaigns — why should Fannie and Freddie, now wards of the government, be permitted to do so?
Those huge lobbying fees don't fully capture the political influence of the GSEs. Two politically well-connected former Fannie Mae CEOs come to mind, Franklin Raines, who was the head of President Clinton's Office of Management and Budget before returning to Fannie Mae as CEO, and James A. Johnson, the former Carter administration official and, until recently, the reported head of Barack Obama's running mate selection process.
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It's a little late in the day to complain about socialism versus capitalism in this context, isn't it? The time to worry about that was when the GSEs were created. You may want to check out William Poole's op/ed in today's NY Times on this. He's no fan of Fannie and Freddie in their current forms but still thinks that a bailout was necessary.
It is probably to late to complain, but I remember when Bush and the Dems were all patting themselves on the back because homeownership rates were so high. Anyone who thought about it knew it was going to turn out bad. I agree with Poole on everything. The GSEs are to big to fail. I remember Buffett saying after the Bear Stearns bail out, "if they would of went bankrupt, it would of been one of Wall Streets worst days ever." That why I say in my post " There shouldn't be any companies too important or too big to fail. If they are, it represents a failure of government regulation."
Edward,
Good point about the ill-advised zeal among politicians to increase homeownership rates, even among folks who had no business buying homes. This probably started in earnest during the Clinton administration, but Bush continued the policy with gusto. There are blameworthy individuals in both major political parties. What's frustrating though is that some on left are portraying the mortgage mess as a cautionary tale about "unfettered free markets" -- as if there hasn't been an enormous government role in the industry via the GSEs, government policies to encourage home ownership, etc.
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