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Government as the Big Lender
By PETER S. GOODMAN

July 14, 2008

The desperate worry over the health of huge financial institutions with country cousin names — Fannie Mae and Freddie Mac — reflects a reality that has reshaped major spheres of American life: the government has in recent months taken on an increasingly dominant role in assuring that Americans can buy a home or attend college.

Much of the private money that once surged into the mortgage industry has fled in a panicked horde, leaving most of the responsibility for financing American homes to the government-sponsored Fannie and Freddie.

Two years ago, when commercial banks were still jostling for fatter slices of the housing market, the share of outstanding mortgages Fannie and Freddie owned and guaranteed dipped below 40 percent, according to an analysis of Federal Reserve data by Moody’s Economy.com. By the first three months of this year, Fannie and Freddie were buying more than two-thirds of all new residential mortgages.

A similar trend is playing out in the realm of student loans. As commercial banks concluded that the business of lending to college students was no longer quite so profitable, the Bush administration promised in May to buy their federally guaranteed student loans, giving the banks capital to continue lending.

In short, in a nation that holds itself up as a citadel of free enterprise, the government has transformed from a reliable guarantor into effectively the only lender for millions of Americans engaged in the largest transactions of their lives.

Before, its more modest mission was to make more loans available at lower rates. Now it is to make sure loans are made at all. The government is setting the terms and the standards of Americans’ biggest loans.

On Sunday, that federal oversight and protection was made more explicit, as the Bush administration sought to mount a rescue of Fannie and Freddie, asking Congress to devote public money to buying the two companies’ flagging stocks.

The new reality is scorned by libertarians and conservatives, who fear state intrusions on the market, and by populists and progressives, who dislike the idea of education and housing increasingly resting upon the government’s willingness to finance it.

“If you’re a socialist, you should be happy,â€