Well, it seems we can’t go more than a few days without a prominent, national media personality commenting on the stability and standing of Fannie Mae and Freddie Mac, how the government-sponsored enterprises ended up in conservatorship, and what’s next for the GSEs.
Last month, Rolling Stone’s Matt Taibbi wrote that there was a government conspiracy behind the bailout and subsequent takeover of Fannie and Freddie, and that the government is preparing to hand the housing finance system over to the big banks.
In what appears to be a syndicated column, spotted on DelawareOnline.com, Will writes about the “misadventures of Fannie and Freddie,” and it’s clear from reading Will’s piece that not only does he think the GSEs current status is unsustainable and unhealthy, he also thinks the creation of Fannie and Freddie was a giant mistake.
Will’s piece starts out:
Gigantic government’s complexity and opacity provide innumerable opportunities for opportunists to act unconstrained by clear law or effective supervision. Today’s example, involving the government’s expropriation of hundreds of billions of dollars, features three sets of unsympathetic actors -- a grasping federal government, a few hedge funds nimble at exploiting the co-mingling of government and the private sector, and two anomalous institutions that should never have existed.
Like Taibbi before him, Will recaps the now-familiar story of how the GSEs ended up in conservatorship, along with the lead-up to and execution of the controversial “Third Amendment Sweep,” which transfers any profits from the GSEs directly to the government.
Since being placed into conservatorship, Will writes that the GSEs have returned to financial health, despite the vociferous crowd that feels otherwise, especially in the wake of Freddie Mac reporting a loss Tuesday morning, its second in the last six months after four straight years of profits.
“Fannie and Freddie have recuperated profitably,” Will writes. “They also have been nationalized.”
Will also delves into the Fannie and Freddie investors whose shares tanked and saw their dividend opportunities disappear after the sweep, as well as the hedge funds that bought into the GSES thinking an exit from conservatorship would lead to a financial windfall.
Here’s Will again:
Many individuals and community banks invested in Fannie and Freddie in good faith and have been injured by the government’s profit confiscation. Granted, a few wealthy people would become more so from judicial invalidation of the “third amendment.” This, however, is at most an argument against creating the moral hazard inherent in GSEs. It is not an argument for allowing the anomalous nature of these institutions to justify lawless discretion by a government as self-interested as those who would profit from restraining the government with law.
Will goes on to compare the GSE investors, and specifically the hedge funds, to the “speculators” who bought up state debts on the cheap after the Revolutionary War, only to have those debts paid in full as part of Alexander Hamilton’s plan to prove that the newly formed United States was financially stable.
And those knowledgeable in the early days of the U.S. or fans of the Broadway smash “Hamilton” (of which Will may be both for all we know) are aware of what happened next.
Here’s Will’s closer:
Alexander Hamilton successfully argued for assumption. Thomas Jefferson and his allies reluctantly acquiesced in exchange for a more southern location for the nation’s new capital.
Which is why Washington is where it is. Fannie’s and Freddie’s misadventures illustrate why Washington is what it is.
Read Will's full column here.