Once upon a time, the average American had to make a choice to invest on Wall Street. Now, all the average taxpayer has to do is wait around for the government to take over the latest ailing financial behemoth.
Last week, the feds placed wobbling mortgage giants Fannie Mae and Freddie Mac into conservatorship — effectively nationalizing the housing finance business.
Certainly, the move came as little surprise given the two companies’ mounting mortgage-related losses in the face of an absurdly thin capital structure that could not be replenished in the private marketplace. But it was little more than the least worst in a series of horrible options. Inaction would have been even worse.
We are entering a new and unsettling phase in the relationship between government and business, one that neither sector particularly wants but cannot avoid. One result is that the line between public and private interests increasingly is being blurred so much as to become unrecognizable.
Nowhere is that more obvious that at Fannie and Freddie, two massive enterprises that combined their government-sponsored creation and backing with publicly traded stock. Fannie and Freddie were perfect fodder for the sort of mischief that privatizes gains while socializing losses.
That’s what happened at Freddie and Fannie, which used their below-market cost of credit as much to reward shareholders as to fulfill their mission in providing secondary market liquidity to encourage homeownership. Meanwhile, the companies effectively lobbied Congress to keep their capital requirements lower than they should have been.
Read the complete story at kansascity.com