With Santa’s sleigh on course from the North Pole and Christmas spirits high, Obama’s Treasury Secretary removed the $400 Billion capital limit on Fannie/Freddie, effectively nationalizing the residential mortgage market.
Fannie Mae and Freddie Mac are GSEs, government sponsored enterprises, creatures of Roosevelt-Johnson forays to provide mortgages to low-income borrowers; they now have private ownership but public backing. In good times shareholders profit, in bad times taxpayers suffer, but the suffering is hidden because the support is off budget. With the Greenspan/Bernanke excess free money setting the stage, Fannie and Freddie plunged into the subprime market creating a gigantic international bubble which recently exploded. Recall Barney Frank’s “rolling the dice” on their subprime expansion. Both companies are under federal conservatorship, but now the taxpayers have issued a blank check, no limits—Fannie and Freddie can now roll the dice without restraint. And rolling dice they are by modifying mortgages to prevent foreclosures. Of course most of these fail:
So we have a perfect example of the leftist government at work interfering with the market. In this case the very gambling which caused the subprime bubble is being used to re-inflate the bubble. This results in bloated home values and bad assets on the balance sheets of the banks–foreclosures which should happen are forestalled. But the real gift to the taxpayers is the black hole of bad assets on the books of the GSEs. These understate the already gigantic deficit and translate into another layer on the unsustainable mountain of debt which will bury our future generations.
So we should thank our sneaky Santas for what the WSJ calls the “Christmas Eve taxpayer massacre” delivered on the light news day.
Tom Motherway