Freddie and Fannie

by Russ Roberts on September 8, 2008

in Politics

Following its knee-jerk, free-market, Milton Friedman obsessed ideology, the Bush Administration has seized control of Fannie Mae and Freddie Mac.

Joke. A bad one, really. If anything, this is just the latest evidence that it doesn’t matter who’s President. Is there anything this administration has done lately that reflects a free market philosophy? Yet because the administration sometimes uses the rhetoric of economic freedom, it allows people to paint the administrations policies as market-oriented.

Another thought:

One of the most depressing things about the current situation is that people will try and find different ways to "fix" the mortgage market when it was the very attempt to "fix" it that brought us to where we are today. The government should get out of the mortgage market. Let individual institutions arise that intermediate between home owners and sellers. Let those that do it well thrive. Let those that do it badly bear the costs and disappear.

It reminds me of social security. We don’t have a retirement crisis. We have a social security crisis. We have a problem created by a set of government institutions.

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{ 32 comments }

Flash Gordon September 8, 2008 at 11:48 am

So right, so clear to clear minds. Clear thinking must be impossible in politics, it appears so seldom.

Mo September 8, 2008 at 12:33 pm

Agreed.

It's bad that everything is "tarred with that brush" of being supposedly "free market", which is one reason capitalism has a bad rep.

The medical care field is one where so many want it socialized because of the problems that are created by government intrusion into that particular marketplace. But people do not really believe me when I say there has been no true free market in medicine since longer than almost any of us have lived.

They are quite willing to believe that "free market medicine" is the root cause of the problems. Russ, you pointed out other areas…it's the same thing over and over again.

"Free markets" are almost a myth anymore, but when allowed to be, tend to help lower the cost to us of goods to us. I just bought a computer for my daughter for a few hundred dollars, and the thing is incredibly powerful. It is true competition and productivity that has brought down the costs of computers, so that they are almost de rigeur for any kid trying to advance in high school or college.

It seems so simple, yet the concepts of free markets are obfuscated by so many.

muirgeo September 8, 2008 at 1:16 pm

"Let individual institutions arise that intermediate between home owners and sellers. Let those that do it well thrive. Let those that do it badly bear the costs and disappear." RR

Wasn't that the set up before the Great Depression?

Didn't the investment institutions do their work separated from banking institutions prior to the repeal of Glass-Steagall?
It seems to me the system was stable when good regulatory measures were in effect. We had great growth and the dollar was strong. But after 9 Wall Street lobbying attempts they finally got their way and Glass-Steagall was overturned among many other deregulatory trends and favors played to Wall Street via it's lobbyist.

Seems to me this isn't about poor regulation but more about Wall Street getting everything it wants from the Fed and the Treasury and over turing effective regulation.

And Social Security is in crisis? I don't think so. It's the ONE government program that hasn't been breeched by Wall Street and it remains solvent, effective and hasn't missed a check yet. In fact, it's even supporting all the other Wall Street created government debt for now.

The problem ultimately is the mixing of money and politics as upheld by the Supreme court Buckley v. Valeo (1976) decision which basically said money is free speech rather then recognizing its use as political bribery.

Separation of church and state is important (though slipping) and likewise we'd do good to cast a law that keeps a wall between private money and politicians. Until then we'll continue along in a corporate state that privatizes profits and socializes debt.

I understand the desire to let the markets be free but the markets themselves have no such desire to be so. They love governmental access. It needs to stop.

Plac Ebo September 8, 2008 at 1:34 pm

muirgeo, it's always refreshing to get your input in an otherwise one-sided message board!

Russ Roberts September 8, 2008 at 1:39 pm

Muirgeo,

Most people do not believe that the government will be able to keep its social security promises as the baby boomers age.

Methinks September 8, 2008 at 1:53 pm

Is there anything this administration has done lately that reflects a free market philosophy?

Only if the Nixon administration could be called free market.

we've now turned MBSs into treasuries, so we've just raised taxes. Great.

Oil Shock September 8, 2008 at 1:53 pm

wall between private money and politicians.

And who will guard those walls? The politicians and their dogs?

The best way to erect wall ( one that would require very little oversight ) is to cut all taxes to zero. Reduce the money available to politicians for their "do good" programs.

Fannie and Freddie were Commie entities until the sixties. Johnson turned them into a fascist monster through government guarantees to private speculators.

Methinks September 8, 2008 at 1:59 pm

Oh, cool. Muirdiot's back.

Let's have a useful post from you for a change.

You've been moaning and groaning aobut Glass-Steagall as if you understand anything, so let's have your solid analysis of Glass-Steagall and an argument for it's return.

1.)what is Glass-Steagall?
2.)why was it passed?
3.)what were the arguments for and against?
4.)what was its intended purpose?
5.)did it achieve its intended goal?
6.)why was it repealed?
7.)what were the arguments for and against its repeal?

Let's have your insight. I'll help you by telling you that aggressive assertion in unintelligible word salad passing for sentences is not insight or analysis. Go!

Randy September 8, 2008 at 2:07 pm

Russ,

"Most people do not believe that the government will be able to keep its social security promises as the baby boomers age."

Count me as one of the non-believers. And further, I don't want the government to even attempt to keep its promises. It is unconscionable to pass on a problem to the next generation that my generation didn't have the guts to fix. We understood the problem, but we did nothing.

Ozornik September 8, 2008 at 2:17 pm

Let’s not for a second forget that both Fannie Mae and Social Security are FDR’s handiwork.
Now, google FDR + Obama (3.8 mil references)
++++
Muirgeo, not that I have much hope for you, but you might want to read ‘The Forgotten Man’ by Amity Shlaes.

Pedro September 8, 2008 at 4:16 pm

Ozornik: google FDR + McCain (3.7 mil references)
Your point?

Ryan September 8, 2008 at 6:32 pm

Ludwig von Mises wrote a fabulous book dealing with this idea that government intrudes in the market to achieve a certain stated objective, but government is inevitably unable to achieve this objective–markets circumvent regulation; reality is not optional–and only causes more severe problems in the longer run, which in turn justifies further intervention in the markets to correct the unintended consequences of previous meddling. I recommend it highly. The examples are outdated, but the overall idea is extremely pertinent. It's called A Critique of Interventionism.

muirgeo September 8, 2008 at 6:46 pm

1.)what is Glass-Steagall?
2.)why was it passed?
3.)what were the arguments for and against?
4.)what was its intended purpose?
5.)did it achieve its intended goal?
6.)why was it repealed?
7.)what were the arguments for and against its repeal?

Posted by: Methinks

It was an act passed after the Great Depression to stabilize our credit markets from Wall Street baby with a gun exesses. It separated banking/lending institutions from investment institutions so that the peoples money used to back the banking institutions would be used responsibly and so that the dollar would, as a currency, be seen around the world as a source of stability. And it was… WAS!

It achieved its goal. The economy boomed, banks were stable and instead of Pottersville we still had Bedford Falls. The dollar became the worlds base currency. No further Great Depressions happened. Prosperity and Political equality were maximized.

It was repealed because of greed and no other reasons. It took 9 attempts and millions of lobbyist dollars but eventually they succeeded.

Some people go into professions with the goal of improving the world… some go into professions with the goal of becoming wealthy and powerful. The latter people, were sad that FDR took their power away. They wanted it back… they got it and now we have some $50 trillion dollars of unfunded liabilities shouldered on the American people and in fact the world and the system has crashed. Only propped up by the Wall Street Capitalist now turned socialist begging for governmental favors with a tin cup and blind mans glasses.

Methinks September 8, 2008 at 7:55 pm

What part of "aggressive assertion and word salad are not 'analysis'" did you not understand, Muirdiot?

Russ Nelson September 8, 2008 at 10:52 pm

None of it, Methinks. The only reason to look at a muirgeo posting is the same reason to look into the toilet before you flush: to see what shit looks like.

Russ Nelson September 8, 2008 at 10:54 pm

None of it, Methinks. The only reason to look at a muirgeo posting is the same reason to look into the toilet before you flush: to see what shit looks like.

muirgeo September 9, 2008 at 1:05 am

It's not near aggressive enough for what these greedy selfish bastards have done to victimize so many people across the world.

Tell me methinks is the state of our economy a problem of greed, corruption, felony or massive incredible ineptitude on the part of our financial institutions.

I can go back as many as 5 or more years and find articles from experts predicting this mess. The CEO's of Freddie and Fanny walking away with $15 million instead of a $100 million while millions will not even have a house. Is there really no place for my contempt?

Shahbim September 9, 2008 at 6:03 am

ha ha ha ha ha!!! nothing to say…

Keith September 9, 2008 at 8:25 am

Quote from muirgeo: "It seems to me the system was stable when good regulatory measures were in effect. We had great growth and the dollar was strong. But after 9 Wall Street lobbying attempts they finally got their way and Glass-Steagall was overturned among many other deregulatory trends and favors played to Wall Street via it's lobbyist."

Your analysis never seems to be able to get to the root cause. You get to a superficial cause and stop looking.

The problem isn't that the lobbyist got the law changed, it's that the power to manipulate and coerce the market was there in the government to be lobbied. If you take away the power to manipulate and coerce the market, then there's nothing for the lobbyist to lobby.

Methinks September 9, 2008 at 9:08 am

I can't disagree with you, Russ.

Keith, what part of Muirdiot's post constituted "analysis" in your opinion? Usually, the problem with an analysis is thinking beyond step one. Muirdiot's problem is that he can't even get to step one.

Methinks September 9, 2008 at 9:10 am

Tell me methinks is the state of our economy a problem of greed, corruption, felony or massive incredible ineptitude on the part of our financial institutions.

No, Muirdiot. The state of our economy is such because idiots like you vote.

muirgeo September 9, 2008 at 10:24 am

If you take away the power to manipulate and coerce the market, then there's nothing for the lobbyist to lobby.

Posted by: Keith |

Maybe because before the law existed and Wall Street did what it wanted we had a GREAT FRICKING DEPRESSION! That was no fun. Wall Street then as now proved free-markets a bogus dangerous concept.

If you take away the power of people to govern themselves you have some other form of autocratic or dictatorial rule. You may be OK with that but I see it as a major threat to my liberty and freedom.

muirgeo September 9, 2008 at 10:27 am

No, Muirdiot. The state of our economy is such because idiots like you vote.

Posted by: Methinks

Wow so voting is the problem.

Well the guys I voted for didn't get elected. So who'd you vote for and if you don't vote what form of dictatorial, autocratic governance is it that you support. What your flavor? Anarchy, Aristocracy, Plutocracy, Fascism , corporatism…please do enlighten…

Hans Luftner September 9, 2008 at 10:42 am

If you take away the power of people to govern themselves you have some other form of autocratic or dictatorial rule.

That's a false dichotomy. But you don't know what that means.

Also, democracy isn't people governing themselves; it's some people governing all people. But you don't understand the distinction.

Methinks September 9, 2008 at 10:45 am

proved free-markets a bogus dangerous concept.

If you take away the power of people to govern themselves you have some other form of autocratic or dictatorial rule.

Muirpid is a less eloquent and far less intelligent Karl Marx. In a minute, he'll be screaming that I slandered him – not because I called him an idiot but because I called him a Marxist. What a useful idiot.

vidyohs September 9, 2008 at 4:37 pm

I have gone utopian!

I expect to see muriduck present his case to this from methinks:

You've been moaning and groaning about Glass-Steagall as if you understand anything, so let's have your solid analysis of Glass-Steagall and an argument for it's return.

1.)what is Glass-Steagall?
2.)why was it passed?
3.)what were the arguments for and against?
4.)what was its intended purpose?
5.)did it achieve its intended goal?
6.)why was it repealed?
7.)what were the arguments for and against its repeal?

Let's have your insight. I'll help you by telling you that aggressive assertion in unintelligible word salad passing for sentences is not insight or analysis. Go!

Posted by: Methinks | Sep 8, 2008 1:59:36 PM

How about it muirduck make my diversion off into utopianville come true.

Sam Grove September 10, 2008 at 12:17 am

Muirgeo adheres to the faulty interpretation of history that leftists promulgate in their persistent yet baseless attack on free markets.

The Great Depression had little to do with free markets and much to do with progressive government intervention into the market which began some decades before the great depression (which, BTW, occurred 13 years AFTER the creation of the FED to prevent such depressions).

Keith September 10, 2008 at 7:38 am

quote from muirgeo: "Maybe because before the law existed and Wall Street did what it wanted we had a GREAT FRICKING DEPRESSION! That was no fun. Wall Street then as now proved free-markets a bogus dangerous concept.

If you take away the power of people to govern themselves you have some other form of autocratic or dictatorial rule. You may be OK with that but I see it as a major threat to my liberty and freedom."

"Wall Street" (whatever that means) didn't cause the depression. It was caused by credit expansion by the Fed. Try doing a little research.

You have this strange notion that somehow having a small group of people in "government" manipulating and coercing the whole population is liberty and not autocratic simply because you're allowed to vote every once and a while. Its as if being robbed by 51% of your fellow citizens is somehow virtuous as long as you call it democracy.

muirgeo September 10, 2008 at 2:16 pm

""Wall Street" (whatever that means) didn't cause the depression. It was caused by credit expansion by the Fed. Try doing a little research." Keith

And who created the Fed Keith?…..WALL STREET

If you're in a hurry start at 3 minute mark.

Hans Luftner September 10, 2008 at 4:18 pm

A zillion Wall Streets couldn't create the Fed on their own. The state could have done so without Wall Street. & you wonder why we want to reduce the power of the state.

maximus September 11, 2008 at 1:02 am

"And who created the Fed Keith?…..WALL STREET"

I'm going to hate myself in the morning, but he is partially right. Rothbard wrote a small book titled "The Case Against The Fed" where he explained how the House of Morgan and Rockefeller allies really pushed for central banking in the early 1900's. Also some of their allies sat on the original board. Rothbard was kinda a crank at times so sometimes I wonder if a little exaggeration isn't included but it is an interesting book. About 150 pages. It can be downloaded at mises.org for free. But it is a better reference than some clown who put together a dogmatic propaganda you tube video that chuckles hyperlinked for support.

buck September 12, 2008 at 6:57 pm

first and foremost people should not buy things they cannot afford

second it is irresponsible to give people loans that cannot pay them back

just because someone dangles a carrot in front of your nose does not mean you should bite

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