Since the Age of Reason political philosophers, elected, appointed, and to some limited degree, those who claimed the power of Divine Right; danced with the notion that government was directly responsible for the social welfare of its constituency. The concept of empowering the state with responsibilities that heretofore was set aside to churches, synagogues, other religious entities, charities, or private contributions has evolved into a constituency-acceptance; indeed, an often contractual understanding that the government is responsible for social obligations.
In 1938, in the angst of the economic depression, President Roosevelt’s administration created Fannie Mae explicitly to increase home ownership. Freddie Mac followed in 1970; both entities hoped to adhere to some ill-defined vague concept of corporate-government social responsibility. The idea was to purchase mortgages from banks as a method of providing liquidity effectually lowering interest rates thus positively realizing a measurable percentage of home ownership.
The rule of unintended consequences once again created a differing expression; the real consequence of this vague notion was the diminishing of economic performance all-the-while increasing financial risk within the marketplace.
So the Federal Housing Finance Agency stepped in to stop the continuance of stupid; hopefully, Secretary Paulson will go far enough and end once and for all time Fannie and Freddie’s insistence on functioning.
The predetermination of home ownership as some kind of right of citizenship is ludicrous. If one owns a home one has the right to pay property tax, insurance, assume the collateral risk of paying plumbers, electricians, landscapers, garbage fees, and value depreciation. In other words, home ownership is not all roses and sweets. There are real downsides. Regardless, why in the world should the government decide or have the authority of inclination to pervert the natural order of the marketplace so that more citizens can by some means or another own a home?
Imagine, our governing enlighten ones created a government-privately managed, publicly traded, entity that purchased mortgages form banks, the very same banks who negotiated price and terms even when the real estate market was declining in value and appreciating in volume, accepting all of the risk, not 80% but 100%, so to pervert the natural order of the marketplace in respect to actual interest rates with the goal of increase accessibility of home ownership to the many regardless of market or purchaser viability.
Now if that was not enough damage to sensibility congress opened its pocket book to the lobbyist of Fannie and Freddie over the years so that the day of reckoning could be postponed. Although both parties are to blame for practicing stupid for so very long; the Democrats considered these entities their private reserve and took an active role in securing all management personnel since the inception of Fannie and Freddie.
Government interference in the natural order of the marketplace must be looked upon with cool, calm, and deliberate askance. The rule of unintended consequence seems to thrive within the workings of legislating. Naturally, Fannie and Freddie would have never functioned without a taxpayer guarantee.