We, The People, Should Run Freddie Mac and Fannie Mae

Pardon me for interrupting the great national debate--on lipstick, ads, earmarks, polls and other "crucial" issues--by inserting a modest suggestion: since we, the taxpayers, are now on the hook for hundreds of billions of dollars to bail out Freddie Mac and Fannie Mae (a lot more than the grand total of all earmarks in the federal budget), the management of those two institutions should now be handed over to the public. Which is the topic of a column I wrote today...

The column appears in Newsday. The upshot is this:

We got into this mess, in part, because Fannie and Freddie were run to enrich their executives - who should have been fired long ago - and to maximize profits. Rather than focus on their primary mission of stabilizing the housing market and making sure average Americans could get loans, the companies became part of the problem - egged on by a coterie of investors who cared only about jumping on the quick-buck conventional wisdom that inflated the housing bubble. So how do the American people stop this from happening again?

We need is to make sure the boards of the two institutions are run by, and for, the public. There's a precedent. The Home Owners' Loan Corp. was born in 1933, when the country faced another massive housing-loan crisis. The corporation ended up owning one in five mortgages; in today's figures, it lent nearly three-quarters of a trillion dollars. Most important, it was run by a public-government board.

Once Freddie and Fannie emerge from the just-imposed receivership under the auspices of the Federal Housing Finance Agency, Congress should require that their boards be restructured. A third of the board should come from the ranks of elected officials, appointed by the president, speaker of the House and the Senate majority leader, with input from representatives of state and local governments, since the collapse of the housing market has implications for stable economic and social governance beyond Washington.

Another third should come from the ranks of nonelected officials, including unions whose pension funds are deeply involved in housing investments and consumer advocates.

The last third could contain representatives of private industry, but they need to be free of any inherent conflicts of interest - meaning, they cannot benefit from any rise or fall in the value of the institutions' stock price.

Frankly, the implications of how Freddie Mac and Fannie Mae are run--and what that means for the economy--are a whole lot more crucial than the monumentally foolish focus on "The Bridge To Nowhere"...and Democrats and progressives bloggers/strategists/critics are lowering the debate as much as Republicans. It's moronic.

We have a chance, with the government's rescue of two institutions that have backed $5 trillion in mortgages, to not only demand public control over the boards of the two institutions but, more important, have a real debate over the proper role of government and how the public exercises some oversight over the "free market".

People, priorities please!!!

Comments

[Gidster]

Does that mean the profits from this venture go to the public, the general fund, or to a private concern?
Corporations have had a "Profits First" mentality for too long!
They have lobbied legislature to remove regulations and oversight of their industries.
How do you hold them accountable? I don't think you can.
But you can replace the regulations and oversights and jail anyone that ignores them.

[ElBruce]

Here's an idea - keep one under government ownership, and split up the other one into lots of chunks, like we did with Ma Bell. The first could provide a credit "baseline" - whatever the legislative financial gurus think is the basic level of credit required for a healthy economy, and the other set of entities could compete with one another for financial product innovation. It would allow a system which derives the benefits of consideration for the public good while also benefitting from an actually competive market (2 competitors just don't cut it).

[swift goat pet for truth]

Can I also get $25 mil for running it into the ground?

[tompoe]

Freddie and Fannie get placed in conservatorship, and . . . where's the moratorium on foreclosures, while shift takes place?

[MilesLong]

Unfortunately, Tasini missed one of the primary reasons the US is bailing out Freddie and Fanny, they have to in order to keep foreign investors who were promised a fixed return on their dollars invested there from divesting themselves from dollar ownership completely. In the last big US recession, when there was a fire sale of real estate and business purchases, foreign governments holding dollars were beginning to dump them. To forestall a complete devaluation of the dollar, the US government promised a guaranteed return on those dollars if those foreign governments held on to them, and dropped them into Freddie and Fanny. This, and only this reason, is why the two institutions have been rescued by a taxpayer funded bailout.

Japan, Saudi Arabia, and the rest will continue to get their promised return paid directly out of your and my pocket. I just love the idea of paying the interest on Saudi dollars while they, with their un-indicted co-conspirators (US oil companies), screw us at the pump.

Would that those even more damaged by the Dumbing Down of America, those Tasini suggests should now run the two institutions, actually set policy for the two biggest mortgage funders. Let's allow average American's, already $20,000 or more in credit card debt, having watched the value of their homes head further South of the original purchase price, and incapable of living within their means run Freddie Mac and Fanny May. I'm guessing the end result would be the same...

[leftLibertarian]

Let Freddie and Fannie go under. I don't want to run it since I don't have the money to buy those two dinos...but if you do...all the best....

[dadw5boys]

Fannie Mae and Freddie Mac only had 4 % bad loans on their books when all these Investment banks and others started going under.

How did those others get into trouble?
They skirted around Fannie Mae and Freddie Mac to buy bundles of loans from Country Wide and other like that.
Why because they were trying to male and extra 2% or 4% on the loan package by bypassing Fannie and Freddie.
They did not realize that Country Wide and the others had hired property appraisers and paid them to over value to loans so they looked great on paper.

So they argued with the Federal Reserve but finally had to assume all that bad paper.
Fannie and Freddie went from doing great to near insilvent in only 2 months.
The FBI has some many fraud investigation from those loan packages they are currently only pursueing those of $ 290,000.00 or more.

This I believe is a planned banking collaspe!!!!!!!

[WASanford]

The Home Owners' Loan Corporation was formed in 1934 in response to the housing bubble then that led to the Great Depression. Its job was to buy toxic mortgages and put them on a thirty year plan that actually paid off the loan's principle.

Fannie Mae when formed in 1938 was a government agency that provided liquidity to the mortgage industry. It didn't become a GSE (Government Sponsored Enterprise) until 1968 when the purpose was to remove its funding from the government budget.

What you're proposing is that we "nationalize" Fannie and Freddie possibly lumping them together into one and run them as a governmental agency again. Sounds like a winner to me!

[LeftRight]

So what you're saying is that we should return Freddie and Fannie to what they started out as? Okay, it's a deal!

[Rule Of Law]

It's so crazy, it just might work! It did for nearly 70 years.