After federal regulators took over failing mortgage giant Freddie Mac, they didn’t stop its risky lending practices. Instead, they ramped up its risk-taking, making it run up even bigger debts at taxpayer expense to try to artificially pump up the economy. They made Freddie buy countless risky mortgage loans. Recently, the Obama Administration forced it to incur $30 billion in losses as part of the administration’s bailout for irresponsible mortgage borrowers, which caps mortgage payments for even high-income borrowers at a ridiculously low level. The Obama Administration tried to prevent Freddie Mac from even disclosing these losses in the financial disclosures it must make to investors under the securities laws.
Given the government’s ability to take even a badly-managed company and run it even worse, why should anyone support Treasury Secretary Geithner’s demand yesterday for vast new powers to take over companies that he thinks pose risks to the economy, or risks of failing? Especially given Geithner’s history of bungling responses to past economic crises, such as his role in the destruction of Indonesia’s economy in the Asian Financial Crisis of the 1990s.
I was a huge critic of GSEs like Fannie Mae and Freddie Mac and their practices. CEI President Fred Smith has been publicly criticizing their ability to gamble at the taxpayers’ expense for years. Congress ignored his prophetic warnings about the risk they posed to taxpayers.
But federal regulators have been so reckless that they have managed to make matters even worse.