Bulldozing Fannie and Freddie

Yesterday, I had an op-ed published in The Washington Times on the reasons why we need to get rid of Fannie Mae and Freddie Mac:

Taxpayers have already spent more than $111 billion bailing out mortgage giants Freddie Mac and Fannie Mae, and that’s going to be just the tip of the iceberg. Instead of limiting Fannie’s and Freddie’s bailouts to $400 billion as first planned, the Treasury quietly announced (on Christmas Eve, no less) that it would offer the two firms unlimited bailouts. This puts taxpayers on the hook for any losses the two firms suffer. And there will be lots of losses.

Last week, Fannie announced it lost $15.3 billion in just the fourth quarter of 2009, bringing its 2009 losses to $74.4 billion. The Congressional Budget Office expects Fannie and Freddie to cost taxpayers a whopping $290 billion this year alone. Collectively, the two firms hold or guarantee more than $5 trillion in debt. In December, 3.8 percent of Freddie’s mortgages were at least 90 days late and 5.2 percent of Fannie’s mortgages were delinquent. Those numbers will continue to rise as the economy rights itself.[…]

The process of eliminating Fannie and Freddie is going to be complicated and hotly debated. They cannot be shut down right now because virtually the entire mortgage market is dependent on them as a wastebasket for toxic mortgage debt. But a long-term strategy for dissolving Fannie Mae and Freddie Mac can and should be created now. The ideal plan would break them up and sell their assets over five to 10 years, with any remaining government activities related to housing consolidated in another agency.

Read the whole piece here.

For more on this topic, see these previous blog posts: