Give credit to the Obama administration for acknowledging that Fannie Mae and Freddie Mac should be phased out. The Treasury offered three options for how to do that, but didn’t say which one it favored.
The refusal to choose was a signal that the debate will take a long time — perhaps a year or more. Meanwhile, Fannie and Freddie will continue winding down and decreasing their portfolios.
The Treasury report correctly acknowledged that the huge sums our politicians have plowed into housing — which receives far more government support than that available in many other countries — diverted investment from more productive uses. It also put taxpayers on the hook for near-catastrophic losses.
Under the first and best choice proposed by Treasury, any government mortgage guarantee would be confined to limited programs such as those for lower-income buyers under the Federal Housing Administration, as well as for veterans under the Veterans Administration and certain farm programs.
As the Treasury report noted, this preferred choice would cause less economic distortion and allow more capital to flow to investments that create wealth, jobs and prosperity.
The second option would be an odd hybrid: a limited mortgage guarantee under a program that would supposedly expand in an emergency. How a small federal program would abruptly get big, and just at the right time, is a troubling question. The federal government isn’t exactly known for doing this sort of thing well. Nor would it stay small for long.
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