Fannie Mae and Freddie Mac were created to open up home ownership to average Americans. Without the two mortgage giants, the housing picture in the U.S. would be drastically different.
The 2008 bailout of Fannie and Freddie by the Treasury put the companies into a conservatorship. Journalist Bethany McLean says that in the wake of that emergency measure, though, Fannie and Freddie have remained the largest of the financial organizations left exposed to another crisis.
“The promise at that time was that this was we were going to fix this; this would be temporary. We were going to figure out how to structure home ownership in a more sensible way.” McLean tells Steve Fast. “Here we sit seven years later and nothing has been done. It’s just a fantastic example of government dysfunction.”
The government has been repaid from the bailout, but is still drawing off profits from Fannie and Freddie with no end to the conservatorship in sight.
“In the wake of the crisis the call has been ‘capital, capital and more capital,’” McLean says. “Fannie and Freddie collectively are the world’s largest financial institutions with over 5 trillion of liabilities and because of the government’s decision they have almost no capital.”
There is little political effort underway to change the current structure of Fannie and Freddie and to provide relief to the private investors who have a 20 percent stake in the companies or move the government out of the ownership of the other 80 percent. The government is reluctant to step out of the mortgage picture without confidence that the system can run safely. How to achieve that confidence is a matter of no consensus.
“These companies have always been controversial,” McLean says. “People view allowing them to recapitalize as the first step to the institutions coming back to the way they were.”
Bethany McLean has written “Shaky Ground: The Strange Saga of the U.S. Mortgage Giants” about the history and status of Fannie Mae and Freddie Mac.
Listen to the interview: Bethany McLean on The Steve Fast Show.
Follow Steve Fast on Twitter @SteveFastShow
