Taxpayer losses from supporting Fannie Mae and Freddie Mac will top $400 billion

Stop the Bailouts!

By Alan Caruba
Sunday, January 3, 2010

I can recall the bailout that Chrysler received in 1979. Jimmy Carter was President and the question of whether the government should save the nation’s third largest automaker was subjected to a lot of debate. In the end, Congress authorized a $1.5 billion loan package. In 1983, Chrysler repaid the loan guaranteed by the U.S. taxpayers.

By contrast, the so-called Stimulus Bill authorized the spending of $787 billion!

The Chrysler bailout was considered an anomaly even though the government has been in the business of making loans to just about anybody and everybody from small business owners to college students for a very long time.

From the G.I. Bill after World War Two to the latest effort to rescue defaulting homeowners from themselves, loans are part of the fabric of how government is seen. \
Given the success of government-run entities such as Amtrak or the Postal Service, the notion that the now government-owned GM can recover, let alone pay back those billions, is doubtful.

Based on a liberal interpretation of the Constitution, the Federal Housing Administration was founded in 1934 to insure mortgage loans made by private firms to qualifying homeowners. The U.S. was in the midst of the Great Depression and the FDR administration engaged in every kind of intervention into the economy in an effort to end it.

In hindsight, many historians and economists believe that, had the government done nothing, the Depression would have very likely ended on its own. The general consensus is that all those government programs prolonged the Depression for ten long years until World War Two intervened.

The government really got into the mortgage loan business big-time when it created Fannie Mae and Freddie Mac so that everyone who wanted to own a home could go to a bank or mortgage company that would, in turn, sell the loan to either of these two quasi- government entities. By the time the government was forced to seize their control, they would own or guarantee about half of the United States’ $12 trillion mortgage market.

Recall that in September 2003, Rep. Barney Frank (D-MA) defended the financial soundness of Fannie Mae and Freddie Mac. Backed by the full credit of the nation, mortgage loan rates kept getting lower and lower at the same time banks and mortgage loan firms were being pressured to make loans to minorities and others who, using normal banking standards, would not have received them.

Just how well did that work out? According to a December 31 article on Bloomberg.com, “Taxpayer losses from supporting Fannie Mae and Freddie Mac will top $400 billion, according to Peter Wallis on, a former general counsel at the Treasury who is now a fellow at the American Enterprise Institute.â€