John Carney at Dealbreaker notes the official reason the White House prefers that the government takeover Fannie Mae and Freddie Mac:
The reason the Bush administration is leaning toward bringing Fannie Mae and Freddie Mac into conservatorship rather than backstopping the two home mortgage companies is that concern about moral hazard problem. Bailing out Fannie and Freddie would reward years of aggressive use of financial mismanagement, according to some members of the administration.
When I stopped laughing at the idea that George W. Bush-led administration would object to the government rewarding financial mismanagement, I found Carney had actually admitted the real reason:
In the Old Executive building and the White House, Fannie Mae is viewed by many as a hotbed of waste, fraud, abuse and Democratic featherbedding.
But then Carney goes off the deep end:
What’s worse, the administration believes that both companies failed their public mission of making housing affordable.
Uh, this is the administration that argued for the ownership society, right? The Administration that trumpeted the (temporary) growth in home ownership over the past five or so years as proof its policies were working? The same people who decided that the cap on Fannie/Freddie loans needed to be raised from $417,500 are now worrying about “making housing affordable”?? (Which is different, clearly, from making housing affordable.)
The normally-astute Yves Smith was complaining a while back about the fact that Fannie and Freddie (and FHA) are virtually The Only Lenders left in the market. It’s possible that the move back to being government entities (as opposed to GSEs) will strengthen, or even reinvigorate, the housing market.
But it’s not the way to bet.