As much as members of Congress want to find scapegoats, the root of this problem is political greed in Congress. Members of Congress from both parties wanted short-term political credit for promoting home ownership even though they were putting our entire economy at risk by encouraging people to buy homes they couldn’t afford. Then, instead of conducting thorough oversight and correcting obvious problems with unstable entities like Fannie Mae and Freddie Mac, members of Congress chose to ignore the problem and distract themselves with unprecedented amounts of pork-barrel spending.
The failure of Fannie Mae and Freddie Mac is the most clearly avoidable aspect of the current mess. These two bloated bullies should have been privatized long ago. Failing that, they should have faced higher capital standards, limits on their mortgage-backed securities portfolios, and a workable mechanism for handling their failure. (The failure mechanism would have increased market discipline on Fannie and Freddie, thereby encouraging them to operate more prudently.)
But to suggest that the current debacle hinged on Fannie and Freddie is speculative. We would probably have had a significant real estate boom without them (just as we have stock market booms even though they can’t intervene in the stock market). In any event, Senator Coburn cannot know that we wouldn’t.
Nor does the failure of Fannie and Freddie drive the current plunge in asset prices. The government has guaranteed all of Fannie and Freddie’s liabilities. Anyone holding their bonds or mortgage-backed securities will receive full payment. Although taxpayers will suffer, investors will not. Investors have become skittish about other kinds of financial assets.
Business booms will come and go. I agree with Sen. Coburn that Congress has done a great deal over past years to make this situation worse. I hope that Fannie/Freddie will be privatized and broken up.
We might begin to make national progress if people could only get over the idea that Congressional appropriations constitute something for nothing. Members of Congress steer billions of dollars to projects for home districts and for allies and contributors. We are becoming a banana republic. Pay to play is no way to run the country.
What I find sad is that the only answer anyone at all seems to have is blame the other guy. And it’s easiest, of course, to blame the government. I don’t doubt there is plenty of blame to go around – that is, in fact, my point. I doubt this big mess can be laid at any one group’s door.
How many of vote for the person or party that 1: promises us largess or 2: protects the largess we already have or 3: increase it?
I don’t base votes on promises of largess – I never have.