On Fannie Mae and Freddie Mac

A month ago Paul Gigot wrote a great opinion piece for the Wall Street Journal: "The Fannie Mae Gang". If your only somewhat familiar with the history of Fannie Mae and Freddie Mac, then I encourage you to read this article. I really liked the ending of the article, and I've bolded a key paragraph:

Fan and Fred also couldn't prosper for as long as they have without the support of the political left, both in Congress and the intellectual class. This includes Mr. Frank and Sen. Chuck Schumer (D., N.Y.) on Capitol Hill, as well as Mr. Krugman and the Washington Post's Steven Pearlstein in the press. Their claim is that the companies are essential for homeownership.

Yet as studies have shown, about half of the implicit taxpayer subsidy for Fan and Fred is pocketed by shareholders and management. According to the Federal Reserve, the half that goes to homeowners adds up to a mere seven basis points on mortgages. In return for this, Fannie was able to pay no fewer than 21 of its executives more than $1 million in 2002, and in 2003 Mr. Raines pocketed more than $20 million. Fannie's left-wing defenders are underwriters of crony capitalism, not affordable housing.

So here we are this week, with the House and Senate preparing to commit taxpayer money to save Fannie and Freddie. The implicit taxpayer guarantee that Messrs. Gray and Raines and so many others said didn't exist has become explicit. Taxpayers may end up having to inject capital into the companies, in addition to guaranteeing their debt.

The abiding lesson here is what happens when you combine private profit with government power. You create political monsters that are protected both by journalists on the left and pseudo-capitalists on Wall Street, by liberal Democrats and country-club Republicans. Even now, after all of their dishonesty and failure, Fannie and Freddie could emerge from this taxpayer rescue more powerful than ever. Campaigning to spare taxpayers from that result would represent genuine "change," not that either presidential candidate seems interested.

Ugh. Clearly these "institutions" need to end up being privatized somehow (if you need to first nationalize them, I'd be open to at least considering that, as long as the end goal was privatizing). Indeed, Fannie and Freddie should never have been created in the first place. The government should not be in the housing loan business, risky ones or otherwise. Why? The proper role of government is the protection of individual rights. There is no individual right to own a home, pure and simple. So the government shouldn't be involved, not directly and not through half-government proxies like Freddie and Fannie.