I have this theory that we, the adults, all function at the emotional level of 13-year-olds, the age of bar mitzvahs in which the young man can declare to the congregation, “Today I am a man.” (Insert laughter here)
They are, of course, not adults and must wait until the ancient age of 18 to vote and 21 to get plastered. At that age, one would think that getting a bank loan to purchase a home would be difficult. Until the housing bubble burst, it wasn’t.
Before the financial collapse of the housing mortgage market in late 2008, some banks were making “Ninja” loans—no income, no job, no assets.
In one of the most brilliant books published of late, “How the West was Lost: Fifty Years of Economic Folly—and the Stark Choices Ahead,” internationally acclaimed economist, Dambisa Moyo, delivers the bad news.
“When, as early as the 1930s, the United States government embarked on an aggressive homeownership strategy designed to get millions of Americans on the housing ladder,” wrote Ms. Moyo, “it did not foresee what it was letting itself in for.”
“Distracted by the siren call of home ownership for all, policymakers inadvertently launched a fifty-year culture of debt and spawned a generation that set their economies firmly down a path of economic destruction.”
At the heart of the collapse were two “government-sponsored entities,” familiarly called Fannie Mae and Freddie Mac. “By promoting a strategy of broad homeownership sweetened by subsidy, Western governments have done more harm than good and are actually contributing to the demise of Western economies as a whole.”
Ladies and gents, I give you the socialist economies of Greece, Spain, England, Ireland, et al. To which one must add, of course, the United States of America, the greatest economy on earth since the end of World War Two and one that still generates a gross domestic product annually of $14 trillion.
We are on the hook for the debt Fannie and Freddie accumulated before the mortgage loan collapse to the tune of $134 billion. The end result of all those government guaranteed housing loans was to stick the taxpayer with the debt.
This explains why, on February 9th, The Wall Street Journal reported that the “White House Plans Revamped Mortgage Market.” How about a headline that says “White House Plans to shut down Fannie and Freddie?”
In October 2010, that’s what Emil W. Henry, Jr., the CEO of Henry, Tiger LLC and former Assistant Secretary of the Treasury from 2005 to 2007, proposed in a Wall Street Journal article. He suggested it was time to eliminate the government-sponsored entities (GSEs) “moving their activities to the private sector.”
How poor was the oversight by the Treasury Department? “By the mid-2000s, the GSEs’ process of debt approval had devolved to a single notification process of Treasury, without any formal process of approval.” Fannie and Freddie sent Treasury a note!
In January, Peter J. Wallison, a senior fellow at the American Enterprise Institute, was published in the Journal with an article, “Moving Beyond Fannie and Freddie” in which he wrote, “If the 2010 election means anything, it is that the American people want the government to stop pursuing policies that put the taxpayer at risk for private failures.”
“As off-budget vehicles with virtually unlimited resources,” wrote Wallison, “Fannie and Freddie were ready-made for political exploitation and advocates for low-income housing…by 2008 half of all mortgages in the U.S.—27 million—were subprime and other high-risk loans, often with little or no down payments by borrowers.”
Ms. Moyo wrote “Remember, these banking activities are not illegal. Banks and bankers are simply operating under the policies stipulated by the governments. These are the rules of the game.”
“It is perhaps no surprise that the industry which over time has shown the greatest appetite for risk is precisely the industry that had the most government guarantees on its debts: the banking sector.”
Now, if you have notice that the word “government” keep popping up throughout this discussion to shutter Fannie and Freddie, it is no accident. They are creatures of the government despite the fiction that they were private enterprises.
The government does not belong in the mortgage loan business and never did. It doesn’t belong in the railroad business either.
The government owns or controls all of the energy assets of the nation either as public land or through its regulatory apparatus.
It allegedly oversees the activities of Wall Street, but that didn’t stop Bernie Madoff from fleecing people of $50 billion.
To avoid a complete breakdown of the nation’s financial system the government had to loan billions to several banks and one “too big to fail” insurance company. Lehman Brothers did not receive a loan and failed. Other elements of the nation’s financial structure were forced to merge to avoid collapse or, in the case of Freddie and Fannie, were seized by the government.
It is the same government that not only can’t seem to find a commonsense answer to the awaiting disaster of Social Security, but it is the one that forced a bill through Congress—Obamacare—to increase the number of people on the roles of Medicare while taking $500 billion out of its account.
If 13-year-olds were running our government, these are the results you could expect.
If you think the current collection of numbskulls in the White House or Congress will actually do something sensible, like significantly reduce spending or put a merciful end to Fannie and Freddie, you will likely be waiting a long time.