Somebody Tell Tim Geithner that Barney Frank Already Saved Fannie and Freddie - The American Spectator | USA News and Politics
Somebody Tell Tim Geithner that Barney Frank Already Saved Fannie and Freddie

The New York Times‘ Andrew Ross Sorkin recently got a phone call from Rep. Barney Frank after he, Sorkin, suggested that the government was doing nothing to reform Fannie Mae and Freddie Mac. 

“I take offense at the idea that we’ve done nothing,” [Frank] told me. Far from dragging its feet, he insisted, the government took the bold step of putting Fannie and Freddie into conservatorship in 2008. “There was no political fear to not do it.” 

Frank also argued that it would be economically destructive to wind down the two mortgage GSEs: 

More important, shutting down Fannie and Freddie and having the private market step in, as politically popular a sound-bite as that may be, is economically unfeasible….

“Nobody in the private market thinks we’re ready,” he said, adding that whatever legislation is developed, it will be “for a postrecession world.”

If Frank’s idea of GSE reform is…to nationalize them in 2008, and if he thinks that they should wait until no more private actors have mortgages on their books, he should probably talk to Tim Geithner. 

After preparing for today’s Future of Housing Finance conference today by softening up financial bloggers yesterday, Geithner made it clear that the GSEs need fundamental reform: 

It’s safe to say there’s no clear consensus yet on how best to design a new system.

But this Administration will side with those who want fundamental change.

It is not tenable to leave in place the system we have today….

But Geithner stopped short of saying that Fannie and Freddie have to be fully privatized or otherwise separated from the government, and claimed that the government needed to keep mortgage rates low. CNBC’s John Carney throws cold water on that possibility, and makes the case for getting rid of the two altogether:

Now-after the bailout-the government lacks all credibility on Fannie and Freddie. As long as they exist, Fannie and Freddie will enjoy a competition killing advantage that will undermine any attempt to create a healthy mortgage market not dependent on government subsidies. They cannot be privatized-they need to be killed.

Defenders of Fannie and Freddie insist that their role in making mortgages cheaper is vital to the market and expanding home-ownership.

But this is nonsense. Fannie and Freddie never made mortgages cheaper-they merely hid the costs. The subsidy was illusory.

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