Commentary: Solving the Wrong Problem

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This makes a lot of sense. Getting rid of Fannie Mae and Freddie Mac would be a huge mistake. Please read the article below and let me know what you think.

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“Can I help?” the Samaritan asks.

“I dropped my keys,” the man replies.

Where?

“Over there, across the street.”

“Then why are you looking here?”

“The light is better,” he says, pointing to the street lamp overhead.

Just like the man looking for his keys, President Obama is trying to solve the wrong problem by calling, as he did in his speech in Phoenix, for the end of Fannie Mae and Freddie Mac as we know it.

The White House, in its suggestions to reform the housing finance system, describes the government guarantee of “more than 80% of all mortgages” as “unsustainable” and says the president wants to “put private capital at the center of the housing finance system.” The “reform,” according to White House propaganda, will end “an era of housing bubble and taxpayer bailouts.”

He’s right about the bubbles and bailouts, but wrong to blame Fannie and Freddie, who strayed from their mission when they morphed into quasi-public companies, emulating Wall Street counterparts, all but abandoning their original objectives dating back to Fannie’s birth in the 1930s to develop and sustain a secondary mortgage market.

To be sure, Fannie and Freddie were not the hallmarks of responsibility in the mortgage meltdown, but have gotten a bad rap. For all their housing expertise, they missed all the signals of the housing bubble (but then again so did Federal Reserve chairman Alan Greenspan and his successor Ben S. Bernanke who dismissed it when the first signs of the meltdown emerged).

The fact is though Fannie and Freddie did not buy and securitize the worst of the junk mortgages generated ahead of the housing collapse. That honor goes to Citigroup, Merrill Lynch, Goldman Sachs, Lehman Brothers and other private investment banks, which eagerly swallowed the worst of mortgages that Countrywide, Ameriquest, and Washington Mutual foisted on would-be homebuyers.

To read the complete article – please use the link below.

Solving the Wrong Problem

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