Given that one major source of the country’s current economic situation was nefarious activity in housing and mortgage lending, it’s not much of a surprise that one of the government-sponsored mortgage backers, Fannie Mae, recently reported a $72 billion loss for last year. It’s companion company, Freddie Mac, also posted a loss ($21.6 billion), though significantly less than Fannie. Part of that is simply because Freddie is smaller.
Both companies played a key part in encouraging risky home loans to those who, in the end, could not afford them. Over several years, government promoted the notion of home ownership and the availability of “affordable housing” for those who couldn’t really afford such a hefty long-term financial obligation. Many politicians touted home ownership to the detriment of reason — and despite the warnings of others. (Take for example this Fox News report from 2008 recapping the lead up to the sub-prime mortgage crisis.)
The result of this campaign for more home ownership was a host of foreclosures, a housing bubble accompanied by a burst and a crisis in the credit market that gave government another excuse to meddle in the economy to “solve” a problem it actually helped create. Despite the best wishes and good intentions of many politicians pushing home ownership for low-income families, eventually, reality set in.
To a large extent, that’s what politicians trade in: the suspension of reality. In suspending reality, they often ignore basic economics. They often tell us we can afford new and better things without it actually costing anything. The overall result has been an ever-increasing entitlement culture and massive federal debt.
Yet, many continue to deride those who actually stand up and argue for at least some sense of fiscal restraint. “We’re in a recession,” they argue. “The government has to spend money” (it doesn’t have). Would any reasonable head of a household argue that the way their family should get out of debt is to spend more money? Only government seems to skate by with that argument.
The consequences of this continued spending won’t be pretty. Eventually, reality will set in.