Congress is moving forward with a bill to wind down Fannie Mae (FNMA) and Freddie Mac (FMCC), the companies taken over by the government during the financial crisis. I have recently pointed out that, when Fannie and Freddie were being run as private businesses, they were making a fraction of the profit that they are now making as government-run enterprises. Moreover, they have, by themselves, refloated the housing market. Take a look at the chart below, which shows mortgage debt held by Fannie and Freddie, as compared with that which the banks are holding.
While banks have been making a steady exodus from the mortgage market since 2009, Fannie and Freddie have stepped up with a huge amount of lending. Virtually all mortgage loans -- and student loans -- are being done by the government these days. That leaves banks to earn their profit via a whole bunch of new fees -- and through their roles as, ahem, custodians of our wealth (something they're pretty bad at, if you ask me).
The wind-down situation is ludicrous, and not just because it potentially threatens the health of the housing market. After all, who's going to lend after Fannie and Freddie are shut down? Banks? This aside, the wind-down efforts expose the hypocrisy of many in Congress -- mostly Republicans -- as well as that of quite a few folks in the mainstream economics profession and the media. For I don't know how many years now, all we've heard have been the pleadings of people who have told us that the government should be "run like a business," and that it "wastes money" and is "inefficient."
Now we have an example of two highly profitable companies that are essentially being completely run by the government, and they are throwing off vast profits, far in excess of anything they ever achieved as privately run firms. So what happens? There is a concerted movement to shut them down, a movement being orchestrated by some of the very people who complained so loudly about government not being run like a business.
It's a total sham.
Fannie and Freddie have handed over nearly $200 billion to taxpayers since the takeover, and the best part about it is that you won't find a single person running these companies on the Forbes 400 list. The irony is, this is money that the private sector could have earned, but chose to reject, when it basically pulled out of the mortgage business. So when you really think about it, the removal of $200 billion from the economy to the U.S. Treasury's coffers is exactly equivalent to a tax, even though so many are framing this as taxpayers being "paid back." They're not getting paid back. They're paying!
I wrote about this in the past -- the illogic of wanting the government to be run like a business. When government is run like a business, it is removing income from the private sector, which goes nowhere. That's a tax.
The fact is, government should not be run as a profit-seeking enterprise at all. Government exists for the public purpose. Business exists for business and profit. The two should complement each other, not compete. Those who cried for a more "businesslike" government are now rapidly and embarrassingly reversing their positions and hoping no one will notice.
Well, they're in luck, as I am probably the only one who notices. Do you see this discussion anywhere in the mainstream media? Of course not. The talking heads on the news are all celebrating this great payback to American taxpayers when it is nothing of the sort.
Congress will eventually get its wish and wind down Fannie and Freddie. Then the banks will have a monopoly over mortgage creation, which they will most likely do sparingly at first, then carelessly later on. The pattern is always the same. I figure that, another few years down the road, we will be bailing them out again. That's how it always seems to go.
If you want my advice (not that anyone is asking), just let the government make these loans -- and student loans, too. Both are working fine. Banks can help us buy cars if they want, and pretend to manage our money for us in the market.