The American Spectator

Special Report

Leveraging Fannie and Freddie

By Carl F. Horowitz on 8.4.08 @ 12:08AM

In the world of investment, one of the main methods of moving a project forward is called "leveraging." By committing a modest sum of money, a funding source can be a catalyst for funds from other sources.

Leveraging also can bring to fruition projects of the wrong kind -- like the perpetual project of nonprofit far-Left groups to socialize the risks and rewards of mortgage lending.

Actually, the risk side already is heavily socialized. What the nonprofits want to do is rein in the rewards as well. The massive housing bill just passed by the House and Senate gives them that chance.

The legislation, already signed by President Bush, is the bitter harvest of political leveraging. Nobody seems to have fallen prey to it, ironically, more than the measure's two main beneficiaries.

The secondary-market mortgage firms Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, better known as "Fannie Mae" and "Freddie Mac," have brought on themselves a whole world of trouble.

WHILE THE DONATIONS to the Left by these mortgage giants haven't amounted to much, they've produced enormous costs.

There is nothing new about capitalists "donating the rope" (as Lenin would say) to their avowed enemies. That's how radical nonprofit networks such as Neighborhood Assistance Corporation of America (NACA), the Association of Community Organizations for Reform Now (ACORN), and the National Council of La Raza have become major players in policy-making.

These groups parlayed donations, on occasion obtained through methods legally resembling extortion, into political power.

Such groups regularly employ (or threaten) boycotts, lawsuits and media campaigns to wring concessions from their corporate targets. Business leaders who donate funds may think they are buying peace. But this "feed the beast" strategy works only in the short run.

Over the long run, these grants enable beneficiaries to ratchet up ongoing campaigns whose consequences diminish company productivity.

This dynamic can extend to an entire industry -- such as mortgage lending.

AGAIN, THIS IS ironic because the ongoing mortgage meltdown is very much a product of Fannie Mae and Freddie Mac's misguided philanthropic impulses.

These firms now own or guarantee a combined more than $5 trillion in residential mortgage debt, a figure representing nearly half of the nation's outstanding balance of $12 trillion. Their critics on the Left know they are loaded and vulnerable. And these critics play hardball.

Case in point: Jesse Jackson. His Rainbow/PUSH Coalition and offshoot Citizenship Education Fund (CEF) held their annual conference in Chicago this past June and early July.

The program listed Freddie Mac as a "Platinum Sponsor" and Fannie Mae as a "Diamond Sponsor." That means that they (or more accurately, their tax-exempt foundations) gave, respectively, at least $150,000 and $100,000.

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