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Well, here's the deal. Fannie Mae and Freddie Mac were designed to create liquidity and confidence in the mortgage market, with the objective to have more people buy houses. (After all everyone deserves to own their own home regardless of whether they can actually afford it- sarcasm) Being less skeptical one could say that the government was just tinkering with the mortgage market to help support the economy and home ownership and a strong construction industry is good for the economy. Hey, government created jobs!! weeeee.
As time went on Fannie Mae and Freddie Mac began lowering their standards for backing loans and packaging mortgaged back securities. This at a time when the market was good. There were a few people who were supposedly managing these firms who have become greatly wealthy through the increase in business from backing these lower quality loans. They then cooked the books to make things look not so bad when the market changed and the loans began to go bad.
Now we know what they did and how it is turning out. Unfortunately it is too late to let them go because they got so big and so important to the entire economy they have to be saved. Yet nobody questions their existence in the first place. In retrospect, if the goal was to have people own their own homes we could have used all the money and resources that have been poured into these entities over the years and just purchased homes or at least gave them money for down payments and for payments when times got tough, for people who the government deemed worthy. My point is why was it necessary to go through the charade of backing the loans rather than just handing out the money directly. The government created this problem by creating these entities and then allowing them to engage in poor business practices that have led to failure. What they have done by simply backing bad loans is leverage their bad investment now we are all going to pay the price.
This is what happens when the government attempts to solve perceived problems, in this case not enough homeowners. Really, what would have been so wrong with letting the market, banks, savings and loans, and other lenders make sound business decisions as to who gets a loan for a house? The bottomline is that government decided that people deserve to own homes whether they could afford them or not and decided to engage in market manipulation to achieve this lofty goal. Now we see how it ends up. Let's make sure the government gets totally involved in providing healthcare to everyone too and see what happens. It will make this look like childsplay. In fact it may end up looking like Social Security.
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