New York — Here’s how Barack Obama can hit an economic home run: privatize Fannie Mae and Freddie Mac.
Dissecting these mega-agencies and selling the resulting slivers would accomplish three key objectives. First, this would begin to reverse Comrade Bush’s neo-Marxist nationalizations. Second, without raising taxes, this would generate revenue to start erasing some of the $1.2 trillion in red ink that will gush from the next federal budget. Third, this would establish a price-floor under so-called toxic mortgages and re-circulate them into the economy.
By purchasing shaky mortgages held by people with sketchy credit, Fannie and Freddie were the twin engines that powered the housing boom. When they ran out of gas, the contraption crashed back to Earth. Want to see the wreckage? Look around.
Fully nationalized, both Fannie and Freddie are too big for any private or institution to swallow outright. They jointly are worth about $5 trillion. So, each should be sliced and sold.
Fannie and Freddie’s assets should be pooled and alphabetized by the surname of each mortgage holder. Thus, Abramson and Acosta top the list. Marlowe and Moskowitz occupy its middle. Zoro and Zucker will bring up the rear. These assets then would be segmented alphabetically into 26 units.
These 26 companies would be auctioned to the highest bidders in transparent, public ceremonies. Revenues would go to the Treasury. This income should be reserved to offset the massive debts that are the domestic legacy Comrade Bush has bequeathed America’s unborn after his relentless, eight-year spendathon.
The buyer of each alphabetical unit would become landlord for its population of mortgage holders. The new landlord could keep collecting checks from homeowners whose payments are current. He could negotiate with those in or approaching financial trouble. Far better for these new landlords to collect, say, 85 percent of what a homeowner owes each month than to boot him and collect 0 percent of that mortgage while that home vacantly awaits someone to water the lawn.
The private-sector owners of these new Alpha, Bravo, and Charlie- through-Zulu companies also could sell residents fire insurance, insulation, BBQ grills, or anything else.
Because the alphabet does not distinguish between rich and poor, creditworthy and delinquent, nor east and west, each of these 26 companies would include mortgages on mansions and shotgun shacks, from Savannah to Seattle. This would spread risk widely, virtually guaranteeing that any alphabetical portfolio would contain plenty of healthy mortgages to compensate for feeble ones. This is preferable to letting banks cherry-pick mortgages from leafy suburbs while sticking taxpayers with non-performing loans from struggling communities.
Some of these loans night need to be untangled and “de-securitized” to compensate various intermediaries between the original lenders and these new landlords. If so, let 26 flowers bloom. They should solve this challenge privately, rather than leave a financial Katrina in the hands of Washington, D.C.’s relentlessly incompetent spendthrifts.
After this Ma Bell-like break-up, these 26 new companies would compete against each other, just as the Baby Bells did. Some will thrive independently. Others will merge or become subsidiaries of existing enterprises. But this will happen in the private sector, without taxpayers being flogged, yet again.
Rather than monkey around with housing prices and mortgage-interest rates, Uncle Sam should wash his hands of Fannie, Freddie, and the self-defeating policy of pursuing affordable housing, then frantically increasing home values once affordable housing abounds. The federal role should be limited to letting Americans deposit money tax-free into down-payment savings accounts. This also will invigorate wobbly banks.
By playing house, Washington politicians helped trigger today’s meltdown. The sooner they stop impersonating mortgage bankers, the better.