Thomas Sowell: Don’t Bail Out Fannie Mae And Freddie Mac, Phase Them Out
Fannie Mae and Freddie Mac do not deserve to be bailed out, but neither do workers, families and businesses deserve to be put through the economic wringer by a collapse of credit markets, such as occurred during the Great Depression of the 1930s.
Neither do the voters deserve to be deceived on the eve of an election by the notion that this is a failure of free markets that should be replaced by political micro-managing.
If Fannie Mae and Freddie Mac were free market institutions they could not have gotten away with their risky financial practices because no one would have bought their securities without the implicit assumption that the politicians would bail them out.
It would be better if no such government-supported enterprises had been created in the first place and mortgages were in fact left to the free market. This bailout creates the expectation of future bailouts.
Phasing out Fannie Mae and Freddie Mac would make much more sense than letting politicians play politics with them again, with the risk and expense being again loaded onto the taxpayers.
“This bailout creates the expectation of future bailouts.” That’s the problem with this whole mess, and one I’ve been harping on for the last several days.
A bailout now doesn’t fix anything. All it does is reward the bad decisions that led us to need this bailout, and because it doesn’t fix anything it ensures that we’ll face another bailout in the future. Maybe on our children’s watch. Maybe on our grandchildren’s watch.
Is that something we really want?
