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.


  • AtheistAdventures

    just like the love in his sign… Ron is a backwards ass

  • Pat Navadomskis

    People should have gone to work done thier jobs mined thier business and not screwed stuff up. Morons should have been showed the door and not hired back.
    low low low pay for some high high pay for others . I have been a homeownwe for 34 years and the people at MY OWN BANK and other banks cuased BIG PROBLEMS — stupid incompetant useless scum stupid dangerous horrible people YOU CAUSED THE PROBLEMS

  • FreeAgain2

    Congress CAUSED the CRASH – and YOU get to pay for the FIX.
    Hey Taxpayer – YOU LOSE.

  • If anyone here is having problems paying on a mortgage, they could file a common law lien on that property stating principal paid plus life experience value; this lien must be satisfied before foreclosure or a commercial lien can be put in place! Common Law Liens supersede commercial liens (thats statutory, security, or judicial) so your lien, in the form of an affidavit, stands as absolute until challenged point for point.


  • rotnflesh

    If anyone here is having problems paying on a mortgage, they could file a common law lien on that property stating principal paid plus life experience value; this lien must be satisfied before foreclosure or a commercial lien can be put in place! Common Law Liens supersede commercial liens (thats statutory, security, or judicial) so your lien, in the form of an affidavit, stands as absolute until challenged point for point.


  • rotnflesh

    What it means is this: If you paid $100k into a $250k house and haven’t fallen behind repeatedly, its a good-faith claim on your property and prevents illegal seizure (which is seizure outside of a judicial decision governed under the 7th amendment to the US constitution *controversy exceeding $20*) in the form of an affidavit put on public record with your county clerk(not FILED…put on RECORD; there’s a diff) and MUST BE PAID TO SEIZE YOUR HOUSE; it’s like getting a refund if they want it.

  • Citizen

    Hey FOREST

    I answered your TWO (2) questions

    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”


  • David

    Hehehehehehehehe, im waiting for some glue to dry here, and i was just scrolling through some of the arguments on this issue that have been going on between Citizen and Forrest. Once again Citizen your doing great as always.

    Now here is the thing, I spent a number of years managing an engineering team when i was working defense projects years ago and i was the primary engineer who came up with the concepts for the others to work on. Among the many things we were involved with were several forms or tactical missile systems and anyone who has attended an air show in this country and others has seen some of my work, so i am the proverbial “Rocket Scientist” so to speak.

    I’ve been sitting here and trying to understand the sheer and absolute complexity of what Citizen and Forrest have been discussing and its so far beyond my comprehension that its absolutely mind boggling. One of the basic rules applied to any form of good engineering is to figure out the absolute simplest way to accomplish the function you want and once you have that, you will have a machine that works and will not give you problems.

    I think we need to look at the sheer simplicity of Addi’s post here, where she says, as i have said myself many times, “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.”

    What other purpose can there be for an economy, other than for it to be a simple, working, efficient, reliable and functioning machine which exists to allow the entire population of a country to exchange the useful goods and services they are able to create for each others benefit. The only economy that America has ever had that did this, was the one Ben Franklin and the colonies established with their colonial script. They freely loaned the currency to the population as a public service. They didn’t need equifax and whatever the hell the name of the other one is. Their credit system consisted of giving one loan to one person and not making another loan to the same person until they had paid back the first one. As far as i know, they didn’t even practice foreclosure, as if someone died without repaying a loan, the money they had given them was free, it was in circulation among the people and generating ever more prosperity and production every time that it changed hands and that’s all that mattered. They could pump money into circulation until they had enough in the system to pay for what everyone was able to do for each other and if they put in more it created inflation, simply because there was more than was needed and never because there was not enough. According to Douglas The GNP of our 13 tiny little colonies, with their tiny little populations at that time was greater than the combined Atlantic of all of the major European superpowers.

    Why did it work ? Because the system was simple enough for a 6 year old child to figure out and because they didn’t have banks to make it complicated in order to give them a way to cheat and steal what was not theirs. It was the people’s money, they could create it as they needed and it stayed in the hands of the population where it could continue to perform its only useful function every time that it changed hands.

    This could work with Gold of Silver too provided we have enough of it today to pay for everything we can do and provided could keep mining enough of it to make up for economic growth without the currency existing in a constant state of inflation. They saw we have only discovered about 5% of the actual gold reserves that exist in this country, so i guess that would be possible too. It does seem a lot of work and trouble digging it out of the ground when we can just print it or issue computer credit to me, but if that’s what people want, then so be it. I do hope that more who haven’t already figured this out are beginning to realize the sheer stupidity of complicating a simple thing that can work so that it cannot work anymore, simply because they find the complication fascinating. That’s what our car manufacturers and most of our other corporations do as well. They complicate their engineering to the point where the machine has to break down and do it at just the right time, so that you will have to buy a new one every 5 years, when they could be so very simple and so very efficient, could serve us for a lifetime and be luxurious and beautiful as well and something we would want to keep, were it just not for the damn complication.

    Will you come help us make things simple ?


    I think we’ve come up with the means to do it and my ex wife and friends already have enough of these in circulation to make it happen before too terribly long, but it will happen sooner with everyone else’s participation too and we all need it to so desperately. Please come and help yourself and everyone else as well.

    • Citizen

      Thank you for your support and encouragement.
      I’ve been challenging Fred and Forest for several months and they always come up short on the logic to support their Big Gov positions.

      But more importantly, We the People need to hold our Government accountable, subject to the will of the people, and that starts with SOUND MONEY.

      A bi-metal backed currency is by no means a panacea cure all. But its a starting point to disable the Government’s counterfeiting operations that distort the market place.

      Currencies based upon an ounce of Gold or ounce Silver simply removes the FRAUD from the money supply. Paper Currency is acceptable as long as it is designated in units of Gold or Silver bullion.
      A 5 ounce Silver Certificate would today be equal to 100 Federal Reserve Notes.

      We don’t need to have all the physical gold in pocket, but the Banks must be prohibited from engaging in Fractional Reserve Banking fraud using the FED as the proverbial Slush Fund which enables the 10:1 magic money bubble.

      Keep supporting Liberty and Ron Paul’s run for President

    • David

      Small correction to this, in regards to gold the term should be deflation instead of inflation, guess i was thinking one thing and my fingers typed another, happens sometimes LOL 🙂

  • AK 1

    A couple of years back when Kudlow & Cramer had their show on CNBC during the height of the bubble, both men were calling for an overhaul of Fanni & Freddie & warned of the impact to tax payers. There needs to be a change in HUD rules. No 1st mortgage should be written without having property taxes & insurance impounded & added to the payment. Some skipped making those payments just so they could make the mortgage payment only. Counties were loosing property taxes way before the home was ever forclosed on.

  • 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.

  • My vote as well, I just hope the Ron Paul 2012 campaign can convince plenty of establishment Republicans. Please get your friends out to vote.

  • Freddie and Fannie ain’t helping themselves and they ain’t helping the homeowners, they both must fail. Barney Frank and Chris Dodd are their biggest allies in congress. So Fred and Forest are once again duped into believing that the Free Market can’t work and that we should continue to bail them out! These people I’ve mentioned are one big happy and dysfunctional family!

  • DeathGodKnight

    Looks like 3 people like their government gifts.

  • campaign4liberty

    Ron Paul 2012

  • leafwatch

    I long for more political leaders like Ron Paul, whose wisdom far surpasses most pols who are only good at one thing: garnering votes, selling themselves no matter how many lies they have to tell to do it.

  • got Jesus ?

  • CreationPhotography

    got Jesus ?

  • NOBS4321

    nakor667 -‘Privitize the profits, socialize the losses.’-

    No Reaganomics since the Savings and Loan failure !

  • NCIcaucus

    What idiot would put a thumbs down on Ron Paul? They surely are brain dead.

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