Let’s face it: it’s time to pull the plug on Fannie Mae and Freddie Mac. The mortgage giants are already on life support, courtesy of the taxpayers. The New York Stock Exchange threatened to delist them last week after their stock fell to less than a dollar a share. Taxpayers are inheriting their $6.8 trillion debt – equivalent to two-thirds of the entire national debt – and it would require massive transfusions of public funds to keep these creaky New Deal relics alive.
Like all government programs, Fannie and Freddie – which were created to help Americans with limited financial means buy homes – seemed like a good idea at the time. But the private-gain, public-risk model used by these quasi-governmental entities has proven to be a spectacular failure. Millions of people they “helped” have either lost their homes to foreclosure or watched the value of their property precipitously decline.
After the federal government seized the mortgage giants this summer, it was discovered that, unlike the auto industry, they had few real assets left to save. So there’s no rational reason left to resuscitate companies that not only decimated the housing market, but were instrumental in triggering an international credit crisis.
Congress and the Bush administration’s Justice Department failed to launch a full-bore investigation five years ago when former Fannie CEO Franklin Raines based executive bonuses on more than $4 billion of “misstated” earnings he blithely attributed to “accounting errors” – not outright fraud. Note that the same senators now in a lather over GM honcho Rick Wagoner’s $14.4 million paycheck looked the other way as Raines received more than $90 million in compensation during his tenure at Fannie.
Since President-elect Barack Obama was the second biggest recipient of Fannie/Freddie’s campaign lucre, the chances of a full public accounting any time soon are dim. Rahm Emanuel, Obama’s new chief of staff, sat on the Freddie Mac board when the company was deliberately deceiving investors, according to an SEC complaint. And Washington attorney Thomas Donilon, who’s now leading Obama’s State Dept. transition team, was in charge of Fannie’s aggressive lobbying campaign on Capitol Hill, which included attempts to discredit federal regulators who were trying to rein-in the mortgage giants. Even so, if Obama is genuinely interested in change we can believe in, he will encourage his former colleagues on Capitol Hill to schedule Fannie and Freddie for a rendezvous with destiny on a date certain in the near future.
