Abolish Fannie Mae and Freddie Mac, and Replace Them With Nothing




Let the Housing Market Normalize!

by Ron Paul

Recently there have been some encouraging signs that Congress is finally willing to admit what should have been evident two years ago. Even after a $150 billion bailout, Fannie Mae and Freddie Mac are still bankrupt and should be abolished. Indeed Rep. Barney Frank, a longtime champion of Fannie and Freddie has made a few statements alluding to this and I have signed on to a letter asking him to clarify his remarks and hold hearings on this topic. There seems to be a growing consensus in favor of abolishing Fannie and Freddie. This is the good news.

The bad news is that instead of simply returning to the free market, Fannie and Freddie will probably be replaced with something equally damaging, and at this point we can only guess what that will be. One possibility is that instead of these two giant Government Sponsored Enterprises (GSEs) the government will deputize thousands of smaller banks to do the same thing – that is to securitize mortgages with taxpayer guarantees to encourage lending that otherwise would not happen. In other words, there will be a myriad of smaller Fannies and Freddies, and government involvement will reach even deeper into the financial sector.

Fannie and Freddie, and thus the taxpayer, has an alarming $5 trillion exposure to the mortgage market. To some, spreading out this risk might seem tempting, and a smart thing to do. But the fact remains that if a bank expects to lose money on a loan, so will the taxpayers. Playing around with structures and definitions will still not deal with the root problem – government meddling in the housing market, playing fast and loose with our tax dollars, and central planning by the Federal Reserve.

Banks have complex risk assessment strategies in place that help them forecast if a particular loan will make them any money or not. If they expect to make money, they will approve the loan. If they have doubts, sometimes they will ask for a co-signer to improve their odds. You might do this willingly for a friend or a relative if you didn’t mind losing some money on their behalf, but current government policies essentially force taxpayers to become cosigners for risky borrowers that are complete strangers, who the banks have already determined to be bad risks. Taxpayers have no choice in the matter because politicians decided a few decades ago that dangling homeownership in front of more people seemed like a good way to garner votes.

That was sold to voters as a compassionate gesture to the poor and beneficial to society as a whole. After all, how could giving more Americans an ownership stake in society be bad? The combined policies of loose credit and government backing increased the demand for housing and drove prices sky high. When the housing market heated up to the breaking point everything came crashing down. Those suddenly facing foreclosure saw the reality of government compassion. Truly, when government offers you a gift, you should eye it with great suspicion.

Another tragedy is that many job seekers are now tethered to their locations because of upside down loan obligations. It takes a lot of effort with their bank and damage to their credit scores to figure out how to get out and move to a place where there are jobs. Will the government now be seeking ways to subsidize renters in some way because of this lack of mobility? Some think so.

My hope is that for the long term stability and health of the economy, the government will extricate itself from the market altogether and let it normalize. My fear is that in its usual misguided efforts at solving one crisis, it will create a thousand others.



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77 Comments:

  1. i suggest more research, as you will find that they address the issue between communism and a resource based economy

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  2. LMAO

    spread the word man

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  3. Ron Paul records his Monday update every Sunday.

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  4. headline: fannie mae and freddie mac to be replaced by freddie mae and fannie mac.

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  5. wait, if this was made on the 23rd, how was this video uploaded one day earlier

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  6. If Fannie and Freddie are the reason for why Free Market's were incapable of assessing risk, as you assert they are so adept at doing...

    How come Free Markets issued mortgages NOT backed by Fannie and Freddie, to rich people, that are defaulting at a HIGHER RATE than Fannie and Freddie backed loans?

    Biggest Defaulters on Mortgages Are the Rich

    "More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent...
    By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent. "

    http://www.nytimes.com/2010/07/09/business/economy/09rich.html?_r=2&src=me&ref=business

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    • fred the protectionist

      You're speaking to Neo-Feudalists, they slavishly worship at the feet of the rich.

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      • We are Libertarians,
        The Rich, Middle Class or Poor are all equal in our eyes.

        We RESPECT the Rule of Law and don't need the Government picking the Winners and Losers as the Progressive Nationalist Socialists (NAZI) "SELECTIVELY" chose in the 1930's.

        Fred... you, and Der Fuhrer, should take your Brown Shirt hate speech to the Progressive blogs
        Good Bye!

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        • I am not sure you are capable of thinking beyond your one-inch rhetoric.

          My point was, not even the vaunted Free Market was capable of correctly picking 'winners and losers' in this case. Ron Paul is incorrectly laying all of the blame at the feet of the government (in the form of Fannie/Freddie) when in actuality it is a very complex issue he is demagoguing and oversimplifying - exemplified by the fact that Free Markets incorrectly assessed risk at an even greater rate for mortgages even WHEN NOT BACKED BY THE GOVERNMENT.

          So, before you went on a drunken rant about nazis, were you going to explain how government backed loans are default less than non-government backed loans?

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    • So your point is?
      Rich people are morally inferior?
      Rich people should have their wealth confiscated?
      Poor people should be given the Rich people's homes?

      On Topic:
      Disband Freddy-Fanny as GSE lenders....so that future MAL-INVESTMENTS in real estate are no longer funded by TAX PAYERS!!!

      The mal-investment in housing was the direct result of Progressive Liberal policy (Community Reinvestment Act) that FORCED banks to make loans sans any credit checks, proof of income, tax returns, ability to pay, etc.

      So your point is Rich, Middle Class and Poor people should QUALIFY under the same terms for those loans
      AND
      The private Free Market lenders should, ONCE AGAIN, be allowed to QUALIFY buyers the "Old Fashion Way" with a critical eye for ability to pay and not a political agenda to GIVE away homes!

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      • My point is, that government backed loans have been defaulting at a lesser rate than non-government backed loans.

        Government Backed: 8% Default Rate
        Free Market: 14% Default Rate

        Please explain to me how, in your utopian world, something that operated absent of government participation and completely in free markets was less efficient.

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        • Thanks for the stats, thus using your numbers

          70% of American's have mortgages, equal to 38,663,887 total loans
          Your "rich" people (house values > $500K) represents 3.0% or 1,159,916 loans.
          Your 14% "rich" defaults = 162,388 default loans
          Your 8% "common citizen" defaults = 2,799,265 defaulting loans
          OR
          SEVENTEEN (17) times that of the "rich" defaults

          Now Freddy and Fanny hold nearly 80% of the total mortgage loan market. Or 2,369,322 defaulting loans funded by TAX PAYERS

          My point is...
          Why the *@*$%# is our Government making these BAD LOANS?!!
          Why does Barney and Chris insist on subsidizing MORE sub-prime loans??

          MY GREATER POINT IS...
          Why is our Government in the loan business at all? Its obvious that they really suck at it, while using TAX PAYER'S MONEY?

          I trust those FACTS aren't to complex for you Forest,
          http://www.infoplease.com/us/census/data/housing.html#axzz0xZoG5Ptk

          Convert to Ron Paul, leave Der Fuhrer in the bunker!

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  7. Ron Paul lays all blame at the feet of our Fed and the GSE’s: “The combined policies of loose credit and government backing increased the demand for housing and drove prices sky-high.”

    So, Ron Paul, if this is the reason for the bubble in housing prices why did bubbles also occur in other countries that:

    1) Did not have ANY type of Fannie/Freddie equivalent
    2) Had much higher interest rates set by their central bank

    Additionally, as you assert that “Banks have complex risk assessment strategies in place that help them forecast if a particular loan will make them any money or not. If they expect to make money, they will approve the loan.”

    Why then, if as you say private industry in so many countries are so adept at evaluating one single persons risk factors within the context of a larger society, are they COMPLETELY incapable of anticipating the impact of any regulatory activity upon the individual?

    In summation this seems to be a 'Private Industry Is Always Brilliant - Except When It Is Not. And If It Is Not, Then American Government Is Always To Blame'

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    • Forest
      Austrian Economics spells it our in Excruciating Detail.

      World Government Central Banks engage in a common loose monetary policy to subsidize mal-investments in Real Estate (US market) and Green Energy (Spain) and thus creating artificial demand "bubbles".

      Put down the NY Times and pick up some serious intellectual reading material,
      I'd suggest F.A. Hayek , Road to Surfdom

      I've already read Mein Kampf, I still have an original 1934 German addition, that was an "enlightening" experience... NOT!
      and
      Paul Krugman
      http://krugman.blogs.nytimes.com/ (your mentor?)
      INSISTS on spending EVERYONE else s money until the economy gets better, that's proving to be a real disaster thus far.
      So lets DOUBLE or TRIPLE TAXES on the Rich, that should create jobs, yea!

      You Progressive Statists slay me,
      I meant that "figuratively", don't get excited Forest.

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      • Did you really just completely not answer any part of my question, and then compound your idiocy by recommending I re-read a book I know more about than you, and that you can't even spell the title of? (Did you really tell me to read the "Road to Surfdom", really?)

        No, Austrian economics DOES NOT "explain it in excruciating detail".

        Again, and please answer my question this time, if it is as simple as 'Government Is The Root Of All Evil', how did housing bubbles and large-scale housing-related bank failures occur in countries that:

        1) DID NOT HAVE A FANNIE/FREDDIE EQUIVALENT
        2) HAD FAR MORE RESTRICTIVE MONETARY POLICY

        I look forward to your answer.

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        • Forest,
          1) No where else in the world is "housing" such a huge industry as here in the US. There is no equivalent housing industry anywhere in the world. Analogous to the NFL does not exist in any other part of the world either. NO other countries have GSE tax payer subsidized housing loan operations like the USA .
          2) There are NO housing bubbles and related bank failures in other countries?? Where are these "other countries" with such a GSE sponsored housing default?

          Sure there are Bank Defaults in Europe and Asia because Baweny Fwank sold them a sub-prime Pig in a Polk AIG insured loan BOMBS.
          Thus the first wave of the TARP money went in the front door of AIG and right out the back door to pay off the INSURED LOAN DEFAULTS.
          All via the electronic wonder duo of Timmy & Benny's magic cyber-cash machine... aka "The FED"

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  8. campaign4liberty

    Ron Paul 2012
    the truth
    LibertyPoet
    website

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  9. The audio is too quiet on this video.

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  10. Central planing by the secretive Federal Reserve is the same as the central planing of the secretive Freemason society. I've asked if Ron Paul belongs to the Freemason group. No response from anyone, only that we have nothing to fear from Freemasons. Replaces the Federal Reserve with Freemasons is no change.

    Is Ron Paul a freemason?

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    • ZullGostnu2
      I've followed Ron Paul's career since the mid 80's and doubt that he's a participant scary secretive closed mens clubs.

      But RP's Ending the FED does not contemplate replacing it with ANOTHER Contrived Central Planning Banking system!

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      • Funny when I type in 'Is Ron Paul A' into google, the number one autocompletion is 'Is Ron Paul A Mason'.

        Funny how y'all Paulians can find a conspiracy in every rabbit hole (Remember Ron Paul's 'grilling' of Bernanke about Watergate?!?!) but roundly reject one if it is with regards to your political false god.

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        • gosh gee whiz Forest
          That just proves he's a mason then, duh!

          And NO, it's not a "conspiracy".
          Its just good old fashion government
          Waste, Fraud and Abuse of the American Taxpayer, nothing new!

          Its time we put the brakes on, especially the ABUSE part!
          Just as the
          Libertarians,
          Tea Party and
          Ron Paul
          have advocated

          Your Government Holy Grail will collapse, Forest
          All by its own corrupt weight.

          God Bless America and Ron Paul

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        • You mean it will collapse like the Confederacy did? Seems like that still stings to you.

          Keep supporting that Lost Cause.

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  11. Where did all the Money Go? Another Scam! Ron your the man best of luck to your whole family!

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  12. go ron!

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  13. Yet another great idea from a REAL LEADER, Ron Paul.

    BUT AS USUAL... read this "This is sheer genius”

    In a bid to stem taxpayer losses for bad loans guaranteed by federal housing agencies Fanny Mae and Freddy Mac, Senator Bob Corker (R-Tenn) proposed that borrowers be required to make a 5% down payment in order to qualify.

    His proposal was rejected 57-42 on a party-line vote because, as
    Senator Chris Dodd (D-Conn) explained,
    "passage of such a requirement would restrict home ownership to only those who can afford it."

    I can't add anything to this.!

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  14. I'll turn 18 in april 2012. I'll vote for him if he runs.

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  15. Privitize the profits, socialize the losses.

    Isn't that straight up Facism?

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  16. He will get my Vote!!! give a thumb up for Run Paul for President 2012.

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  17. He really needs to run in 2012. I wish he would declare early.

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  18. if these people want to put floors and ceilings on everything, maybe capping home prices would be the best bet, well best for us, not so for them.
    thanks Ron!

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  19. There is no such thing as a free market. Never has been, and never will be.
    All markets have always been subservient to, and controlled by, military power.
    Until you idiots seek enlightenment, instead of ignorance, there will never be a free market.

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    • A Free Market hasn't existed in the USA since around 1784.

      Ever since then the Political Elite have created special protections for their Cronies and our markets have become more contrived ever since.

      Today our Markets have become so convoluted we wouldn't recognize a Free Market if it fell on us.

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      • Let me interpret your idiocy, Citizen:

        "I yearn for the nonexistent utopian days when a man (well, a white man at least) could do whatever he wanted and be judged only by the free markets. I mean the days when we were really 'Free', and I could have slaves and slave labor, women did the right thing and let white men run the country, I could nail all the child prostitutes I wanted and put my kids to work in a mine at age 6 - ahhh yes, THOSE were the days when we were 'free' and markets were 'free to operate."

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        • Forest...

          Your vision of American must be a 1984 Police State of unimaginable horror, a place where most every citizen is a heinous godless criminal.

          I'm sorry for you pain and may God Bless you Forest.

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      • Bingo Citizen;

        A free market cannot exist unless congress fulfills its constitutional obligation to create and manage the public currency to fuel free and private trade and production by the citizens.

        Instead they have abrogated that responsibility to private banks who have used their control of the currency to establish themselves as the "Political Elite have created special protections for their Cronies", and contrived not only our markets but our body politic for their benefit as well.

        I'm an immigrant from one of Forests 1984 Police States and every citizen there was a criminal and considered a potential threat to the power of the banks which established it and treated as such, except of course for the 1/3 of the population which was paid by them to enforce their power over the rest who were taxed into abject poverty in order to pay them to do so. Your bang on about that as well.

        We sure as hell agree on a great many things. Thanks Citizen, all of this is very well stated :)

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  20. Why should the value of a house increase over time. After all, any other commodity will diminish in value over time - you car, computer, furniture, etc. There are exceptions of course, especially for antiques. But why should the value of a house go up with time?

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    • fred the protectionist

      High population density.

      The elite gluttons thought immigration would increase US population exponentially, thereby increasing home values exponentially. But the elitist gluttons ran into popular resistance to immigration.

      The halting of immigration reform happened simultaneously to the drop in home prices, the bubble if you want to call it that. It wasn't a bubble, it was an expected increase in US population, speculation.

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      • NO..
        It was the artificial Demand spurred by loose to non-existent lending standards.
        Illegals don't buy houses.
        People without jobs don't buy houses either...

        Closed borders and "protectionists" tariffs won't create jobs or correct bad monetary policy.

        The Government forced lenders to make bad loans through bad regulations "politically" designed to make everyone a homeowner, regardless if the have a job, income or any "skin in the game"

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        • Hmmm.... The government did NOT 'force' people to even make 1% of the loans that failed - can you still explain why non-government backed loans are defaulting at a higher rate than those backed by the government (not this mythical 'government put a gun to my head and made me buy a house' crap)?

          To even intimate that people were 'forced' to buy a house is pure lunacy and absolves personal responsibility on the part of the homebuyer and the lender.

          Citizen says part of the housing problem was: "loose to non-existent lending standards."

          Are you saying there should have been MORE regulation? But... But... But... Gee whiz, according to Ron Paul banks are the smartest, I mean they have all these: "complex risk assessment strategies in place that help them forecast if a particular loan will make them any money or not."

          You should stay in the shallow end with the kiddies, Citizen, you are clearly in over your head.

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    • Excellent question, xp19375.

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    • Value of Property? The American Dream, you must not own one or have not paid for one to think it depreciates because it gets old. Home ownership is a vertue! However, if not taken care of, it will deteriate and loose value. Pride of a homeowner...the value should maintain itself or increase. Just because the finance charges were too high, added into the loan, doesn't mean the value of the house should drop, it's the value of the loan that is the problem. Get a grip!

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    • Your right if doesn't...
      But inflation drives home values up 3% + annually, or at least it used to.

      Until the mid 90's when loose money policy stimulated artificial demand and hyper price increases and a housing boom ensued.

      Now we have excess supply and a deflationary Bust!
      Home prices have another 2-3 years of downward pressures until the 11 Million home owners under water in their mortgages can liquidate and exit those mortgages, correction.

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      • Citizen says: "mid 90’s when loose money policy stimulated artificial demand"

        Rates are actually lower right now than they were in the mid 90's, why isn't there a housing bubble now?

        Also, why did housing bubbles occur in countries that had much tighter monetary policy?

        As well, why didn't housing bubbles occur in countries that had equally loose monetary policy?

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        • I'm not sure I can "dumb down" the answer enough for you Forest...

          1. the housing Bubble Burst, excess supply, high jobless rates, no confidence in the economy... need I continue?

          2. Low rates do not an economy make! Even though Tim, Ben and Bawney are still pushing their heroin sub-primes, no one is buying. What with a 27% drop in sales year over year, got the message!

          And where is this housing boom-bust in other countries occurring? China?, India? Australia? Please provide numbers, links?

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