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by Ilargi
From a purely political point of view, it’s a simple story. Existing homeowners are a far more powerful force at the voting booth than potential owners, homebuyers, are. It’s therefore very much in the interest of the incumbent government to keep home prices as high as it can. Let them slide too much and you will pay for that at the next election. For potential buyers, you can devise plans that lower interest rates and down payments, but that's all. More affordability simply through lower prices is not on the political table.
Still, in the "listening conference" on US housing policies - Fannie Mae and Freddie Mac in particular - that started this week, it's not voters who have the biggest say. That is reserved for the financial industry, and how could it not be? Not that the Obama administration has to hear the truth from the bankers anymore: Washington has long since realized that truth. Which is that without Fannie and Freddie and the 80% stake the US took in them in 2008, as well as the unlimited financial guarantee issued by Tim Geithner at the end of 2009, it's not just the housing industry that would instantly collapse. The banking industry would, like a shadow, rapidly follow in its footsteps.
Which is why the conference is largely an elaborate piece of public spectacle, bereft of any true substance. It’s the government going through the motions of an exercise when it knows the outcome beforehand; perhaps silently praying for a miracle to come forward, but at the same time not even remotely considering the one and only solution to the problem. Which is to get rid of Fannie and Freddie, let the share- and bond-holders take the haircuts they deserve for investing in overtly bankrupt walking dead, take the losses that remain on the federal balance sheet, and let the housing and mortgage industries sort it out for themselves for a while. Say, five years.
Fannie and Freddie - The Exit Doors are Shut
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