Freddie and Fannie

The ‘conservatorship’ of Freddie Mac and Fannie Mae represents, as Steven Pearlstein notes in the Washington Post, the most direct role for the federal government in the “workings of the financial system” since the great depression. Clive Crook points out that the eventual nationalisation of Freddie Mac and Fannie Mae will bring 25 more times more loans onto the public balance sheet than the nationalisation of Northern Rock did in Britain. It is an illustration of how bad things are that there has been almost no political dissent about the move.

Freddie Mac and Fannie Mae have long stood as examples of how political problems get kicked down the road in Washington because they are too difficult to solve or because their patrons are too powerful to be confronted. Freddie and Fannie had to be rescued because they were ‘too big to fail’, so Washington should not let them grow so big again however tempting it may be to do so.