The Washington Post reports that the Obama administration is considering yet another overhaul of troubled mortgage giants Fannie Mae and Freddie Mac. In the latest rescue, the government would create a “bad bank” that would take on all the toxic mortgages, thus creating a new “good bank” with a “clean slate.” The Post reports that “Options for the ‘good banks’ include consolidating the firms into one government agency, leaving mortgage finance to private banks or maintaining a hybrid model.”
So, just to recap the sad history of Fannie and Freddie, both institutions were government-chartered enterprises created to boost home ownership. Though they were technically privately owned, they benefitted from an implied government backing, allowing them to borrow money at cheaper interest rates than their competitors, dominate the mortgage market, and inflate the housing bubble to unsustainable levels while they were protected from any real scrutiny because of their cozy relationship with Congress, particularly among prominent Democrats. When the housing bubble bursted, that “implicit” government backing became explicit, as the government took an ownership stake in the institutions and put taxpayers on the hook for $1.5 trillion in direct aid and loan guarantees. Now, still stuck with bad assets from its idiotic risk management decisions that were the result of a government-created moral hazard, the government wants to create a new entity that will put taxpayers on the hook for additional losses, and quite possibly remove all pretense of these institutions being “private,” and morph them into one giant new government agency.
And now this same administration is trying to sell a health care plan in which the government expands Medicaid, requires individuals to purchase insurance, gives them government subsidies to purchase insurance on a government-run exchange, choosing among government-designed “private” plans, or a fully government-run plan — and crying “fearmongering” when some of us rise up to say that this will lead to a government takeover of health care.
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