Fannie Mae and Freddie Mac were bailed out at a cost to taxpayers of between $148 billion and $363 billion. Their recklessness and wrongdoing was so obvious that even Treasury Secretary Geithner admits that “Fannie and Freddie were a core part of what went wrong” in the financial crisis. The two government-sponsored mortgage giants engaged in massive accounting fraud, and their allies in the Obama administration have now spent $160 million in taxpayer money defending them against various charges.
Yet, their longtime defenders, like the Washington Post’s Steven Pearlstein, are completely unrepentant. They continue to suggest that only right-wing ideologues could want to eliminate scandal-plagued Fannie and Freddie. Pearlstein long dismissed warnings from conservatives like the Wall Street Journal’s Paul Gigot about the dangers these mortgage giants posed to our financial system.
Incredibly, Pearlstein still believes that what’s good for Fannie and Freddie is good for America. In the January 23 Washington Post, Pearlstein showed he has learned nothing from the financial crisis. Pearlstein called House Republicans “free-market ideologues” for wanting to rein in the two companies. He praised “low-income-housing advocates and the Obama administration” for opposing this reform effort. He suggested that access to mortgages (and thus, homeownership) would suffer without Fannie and Freddie, ignoring the fact that homeownership rates are higher in countries like Chile and Italy that have nothing like Fannie or Freddie.
The last thing America needs is to keep Fannie and Freddie around to help spawn the next financial crisis. Fannie and Freddie helped spawn the current mortgage crisis by buying up risky mortgages and repackaging them as prime mortgages, thus creating an artificial market for junk: “From the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime.” As Government-Sponsored Enterprises, they were not subject to the sort of capital requirements that apply to private entities, so they did not have enough reserves to cover their losses when their mortgages started defaulting.
Congressional Democrats last year blocked a GOP amendment that would have reformed the government-sponsored mortgage giants, Fannie Mae and Freddie Mac. The Obama administration lifted a $400 billion limit on bailing them out and showered their executives with $42 million in pay.
At the direction of the Obama administration, Freddie Mac ran up more than $30 billion in losses to bail out mortgage borrowers, some of whom had high incomes. Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public.
Obama received $125,000 in contributions from Fannie Mae and Freddie Mac executives as a senator, second only to the Senator Chris Dodd, who was forced to retire last year over financial improprieties (such as his real estate gift from a lobbyist and “sweetheart mortgage from Countrywide Financial“), yet was the chief drafter of the Dodd-Frank financial “reform” law. (Dodd-Frank harms the economy, and violates both the Constitution’s separation of powers, and private property and equal-protection rights).
Despite the devastating financial impact of Fannie Mae and Freddie Mac’s mistakes, their defenders are as unrepentant, and perhaps as influential, as ever. Don’t expect their allies in the Obama administration to endorse any meaningful reforms.