Strictly Right

Fannie Mae and Freddie Mac serve as perfect examples of what happens when the government intervenes in the private sector. The two mortgage giants were once called ‘government sponsored enterprises,’ which meant that profits were collected by Democrat apparatchiks, while taxpayers were on the hook for any and all losses. The purported mission of these enterprises was to add liquidity to the housing market. The great ‘right’ of home ownership was to be extended to everyone. That dream came to a nightmarish end in 2008, when the housing bubble finally burst.

Now Americans are forced to pay for politically motivated decisions. Fannie and Freddie no longer operate under the guise of being private businesses. As part of the never-ending slew of bailouts that have taken place over the last two years, Fannie and Freddie were given an unlimited line of credit from the government. Over that time period, the two firms have requested $150 billion. Freddie Mac has been responsible for $64 billion of those request, with no end in sight. Freddie needs an additional $1.8 billion from the Treasury, just to stay afloat.

What does the government get for this unlimited investment?

The second largest U.S. residential mortgage funds provider reported a loss of $6.0 billion, or $1.85 per diluted share, in the second quarter, including a $1.3 billion dividend payment to the government.

That compares with an $8.0 billion loss in the prior quarter and is the best three-month performance in a year. The firm lost $840 million in the second quarter of last year.

The lesson is obvious: the government should not intervene in the private sector. No matter how innocent or noble a cause the government supports, like home ownership, they do not account, nor can they, for the law of unintended consequences. The economy is far too diverse for the government to make tweaks around the edges, without effecting more than they could ever foresee. The free market will regulate and adjust itself. Government meddling hides problems, creates new ones, and perpetuates existing ones. The seemingly bottomless money pits that are Fannie Mae and Freddie Mac serve as a great evidence of crippling unintended consequences, born of seemingly noble intentions.

Tags: Bailout, Debt, Fannie Mae, Freddie Mac