Fannie & Freddie: Paving The Way For More Socialism

The news lately has been dominated by the potential failures of Fannie Mae and Freddie Mac, the innocent-sounding names of two giant mortgage lenders set up by the government years ago. I've been reading as many articles and editorials as I can (RealClearMarkets.com is my favorite collection of multiple economic opinions), and it seems that Fannie and Freedie (or, the FM's) hold $5 trillion in housing loans, or half the national debt, and no one wants to think about what happens if these guys go under, and there's even talk about the government bailing them out.

I may be oversimplifying things in my limited understanding, but it seems that Congress set the FM's up years ago to help more people afford houses. Indeed, as long as everyone pays you back, it doesn't matter how many people you guarantee a loan for; no matter how much money you really have - it will all balance out after everyone gets their money and pays you back. But when thousands of people have to default - because no matter how much the government wants to believe it, it can't automatically make houses affordable for everyone - there's a big problem because most of that money never really existed, and now it matters.

Now the root of this problem was in too much government involvement - it artificially influenced supply and demand for housing, and it's coming back to haunt them. But in the cruel irony of advancing socialism, capitalism and free markets are being blamed for not regulating the FM's well enough to keep this from happening, and populist appeal is building for more government intervention - bailouts, regulations, and who knows what else.

In other words, government involvement was the problem, but when government involvement fails, the suggested solution is that the government needs to be more involved... and round and round goes the expanding circle of big government. (Andrew Napolitano and the Washington Post have some decent, explanatory editorials.)