The politics of this American housing finance dilemma will not be easily settled

An American housing finance dilemma: 

What to do with Fannie Mae and Freddie Mac?

Alex J. Pollock

What should be done with Fannie Mae and Freddie Mac is the biggest question of the $10 trillion, post-crisis American housing finance sector. Essentially no progress has been made on this question.


Fannie Mae and Freddie Mac were and are unique features of American housing finance compared to other countries. According to their own pre-crisis publicity, Fannie and Freddie made U.S. mortgage lending “the envy of the world.” In those days, Fannie and Freddie were accustomed to being the stars and darlings of both Washington and Wall Street – or more precisely, being a darling of Washington made them a star of Wall Street. Fannie in particular was also a greatly feared bully boy in both Washington and Wall Street, whom most politicians and bankers were afraid to cross or offend.

Perhaps drunk with the sight of power and hubris, the free use of the U.S. Treasury’s credit, and nearly unlimited command of other people’s money, domestic and international, Fannie and Freddie became major perpetrators of the housing bubble, running up the leverage of the housing finance sector, inflating house prices, escalating systemic risk, and making boodles of bad loans and investments.

As in a Greek tragedy, their hubris led to humiliation.

.....

Read more: www.aei.org