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Morning Bell: Holding Responsible Regulation Hostage

Posted By Conn Carroll On May 21, 2008 @ 9:08 am In Ongoing Priorities | Comments Disabled

At the height of the “mortgage crisis” liberal commentators [1] gleefully claimed recent financial turbulence was proof that free markets didn’t work. If only the housing market in this country was actually free. In actuality, two government-sponsored entities, Freddie Mac and Fannie Mae, have used their guaranteed access to federal credit to establish an 80% market share in the mortgage reselling industry [2].

As with most government interference in the marketplace, Freddie’s and Fannie’s government-sponsored advantages have encouraged irresponsible behavior that ultimately has placed the American taxpayer at risk. Freddie Mac and Fannie Mae have already racked up $9 billion in mortgage-related losses last year and have another $19.9 billion in unrealized losses still on their books. [3] A complete collapse of Freddie and Fannie would cost taxpayers $5 trillion. [3]

So yes, there is some good in the mortgage bailout bill passed out of the Senate Banking Committee yesterday. The bill does create a new regulator with the tools necessary to ensure Freddie and Fannie do not continue to abuse their market position or destabilize the financial system. As Treasury Secretary Hank Paulson said: ”Fannie Mae and Freddie Mac are guaranteeing a greater share of mortgages than ever before. It’s never been more critical that markets have confidence in how these companies are overseen and regulated [4].”

But if these reforms are so necessary to making sure that future government-enabled mortgage bubbles do not occur, then they are worth passing as a standalone measure. They should not be held hostage as part of a larger package that bails out irresponsible banks such as Countrywide Financial, bails out irresponsible borrowers and does nothing to actually help the economy. Worse, this bill even creates a permanent housing slush fund [5] that is guaranteed to to put federal dollars in the hands of corrupt [6] and fraudulent [7] groups such as ACORN [8].

The major foreclosure hot spots are confined to only a few parts of the country, including areas in Florida, Colorado, Arizona and California. Many of these foreclosures are occurring not just because buyers bought too much house, but also because developers mistakenly overestimated how long people were willing to commute to their jobs in more densely populated areas. In other words, many of these housing prices are never going to go back up and it would be terrible policy for the federal government to try [9].

Quick Hits:


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URL to article: http://blog.heritage.org/2008/05/21/morning-bell-holding-responsible-regulation-hostage/

URLs in this post:

[1] liberal commentators: http://www.washingtonpost.com/wp-dyn/content/article/2008/03/17/AR2008031702154.html

[2] have used their guaranteed access to federal credit to establish an 80% market share in the mortgage reselling industry: http://www.foundry.org/2008/05/07/morning-bell-can-government-worsen-the-mortgage-crisis-yes-we-can/

[3] Freddie Mac and Fannie Mae have already racked up $9 billion in mortgage-related losses last year and have another $19.9 billion in unrealized losses still on their books.: http://www.nytimes.com/2008/05/06/business/06fannie.html?_r=1&ref=todayspaper&oref=slogin

[4] Fannie Mae and Freddie Mac are guaranteeing a greater share of mortgages than ever before. It’s never been more critical that markets have confidence in how these companies are overseen and regulated: http://www.nytimes.com/aponline/washington/AP-Congress-Housing.html?scp=2&sq=mortgage+dodd+shelby&st=nyt

[5] creates a permanent housing slush fund: http://www.nytimes.com/2008/05/20/business/20housing.html?scp=4&sq=mortgage+dodd+shelby&st=nyt

[6] corrupt: http://nwrepublican.blogspot.com/2007/08/washington-state-voter-fraud-web.html

[7] fraudulent: http://www.kmbc.com/politics/10214492/detail.html

[8] ACORN: http://www.opinionjournal.com/editorial/feature.html?id=110009189

[9] it would be terrible policy for the federal government to try: http://online.wsj.com/article/SB121132525879208689.html?mod=todays_columnists

[10] busy setting farm commodity subsidy prices at historically high levels: http://www.washingtonpost.com/wp-dyn/content/article/2008/05/20/AR2008052001581.html

[11] rethink farm subsidies entirely: http://www.nytimes.com/2008/05/20/business/worldbusiness/20subsidy.html?ref=todayspaper

[12] announced: http://www.latimes.com/news/nationworld/nation/la-na-polar21-2008may21,0,5326944.story

[13] a growing wave of companies in all sectors — technology, financial services, energy, retail, manufacturing — are embracing environmentally safe practices and saving hundreds of millions of dollars: http://www.usatoday.com/money/industries/environment/2008-05-20-green-companies_N.htm

[14] serious unintended consequences: http://www.nytimes.com/2008/05/21/science/earth/21biofuels.html?ref=todayspaper

[15] at least three of the following five colors: red, green, yellow, blue/purple, and white: http://www.denverpost.com/lifestyles/ci_9305736

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