Washington's Mess

By Thomas Sowell

“Much of that mess [in the financial markets] is due to the very people we are now turning to for solutions—members of Congress. Past Congresses created the hybrid financial institutions known as Fannie Mae and Freddie Mac, private institutions with government backing and political influence. About half of the mortgages in this country are backed by these two institutions. Such institutions—exempt from laws that apply to other financial institutions and backed by the implicit promise of government support with the taxpayers’ money—are an open invitation to risky behavior. When these risks blew up in their faces, Fannie Mae and Freddie Mac were taken over by the government, costing the taxpayers billions of dollars. For years the Wall Street Journal has been warning that Fannie Mae and Freddie Mac were taking reckless chances but liberal Democrats especially have pooh-poohed the dangers. Back in 2002, the Wall Street Journal said: ‘The time for the political system to focus on Fannie and Fred isn’t when we have a housing crisis; by then it will be too late.’ The hybrid public-and-private nature of these financial giants amounts to ‘privatizing profit and socializing risk,’ since taxpayers get stuck with the tab when high-risk finances don’t work out... Both Fannie Mae and Freddie Mac have been generous in their contributions to politicians’ political campaigns, so it is perhaps not surprising that politicians have been generous to them. This is certainly part of ‘the mess in Washington’ that Barack Obama talks about. But don’t expect him to clean it up. Franklin Raines, who made mega-millions for himself while mismanaging Fannie Mae into a financial disaster, is one of Obama’s advisers.” —Thomas Sowell