President Donald Trump’s plan to privatize Fannie Mae and Freddie Mac is, like most “privatization” efforts touted by any government on earth, a farce.
The plan consists of pressuring Congress to remove Fannie Mae’s and Freddie Mac’s federal charters, which on the surface would seem as if the government wants them to compete in the open with private organizations. But in reality, the plan doesn’t force the two mortgage loan giants to compete. Instead, it gives the U.S. power over any potential competitors.
“It’s not removing government from the housing sector; it may shift government subsidies from Fannie and Freddie to other entities, but that’s it,” senior fellow at the Competitive Enterprise Institute John Berlau explained.
Instead of simply releasing the companies from government’s control and leaving it at that, not adding more regulations to an already over-regulated market, the Trump administration wants to add more firms to the same type of charter under which Fannie and Freddie operate. This will effectively allow more companies to thrive mostly thanks to the government’s direct role in subsidizing them through government-backed loans.
With more companies like Fannie and Freddie out there, more taxpayer money will be given to banks to incentivize consumers to go wild and spend on property they can’t afford. This will artificially boost mortgage lending. In other words, make it easy, or “cheaper,” for anyone to buy a home.
In no time, we’ll have another bubble in our hands, and yet another generation of homeowners who simply can’t pay their mortgage.
Unfortunately for American taxpayers, a bubble also means that their hard-earned money will be on the hook in case the bubble, once again, explodes like it did in 2008. And this time around, Fannie and Freddie will need $100 billion in bailout money, Reason reports.
More Meddling, More Problems
As you suspected, Trump is doing nothing but to create a government-backed solution to a government-created problem that will actually worsen the problem. And what’s worse, everyone loses.
From homeowners who couldn’t afford a mortgage, to begin with to taxpayers, who will have to bail out not just Fannie and Freddie but also all their competitors working under the same type of charter.
If Trump was a friend of the working man (and the taxpaying blue collar man) he would bring all home mortgage programs backed by the government to an end.
By giving the industry “a hand,” government doesn’t make homes more affordable. In fact, it’s quite the contrary. It artificially increases the cost of home ownership and divides the losses among the poor souls working hard to make ends meet.