President Obama’s Attempts to Grow the Government Aren’t Subtle
President Obama’s recent speech regarding housing finance reform in Arizona made clear that he is still insistent upon growing government. He called for an end to Fannie Mae and Freddie Mac, but simultaneously advocated for further government intrusion in the housing finance market.
Fannie and Freddie are failed institutions; history shows how they have hurt taxpayers, homeowners, and the whole financial market.
Rep. Scott Garrett (R-NJ), Chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, issued a statement regarding Mr. Obama’s speech as well. He stated:
For the past five years, the president has ignored the true causes of the financial crisis—the government’s misguided efforts at allocating credit through Fannie Mae and Freddie Mac. The president’s failure to address the largest bailout in our history has only emboldened Washington bureaucrats to continue the federal government’s domination of the housing finance market. Americans deserve better.
Similarly, the Heritage Foundation also pointed out inconsistencies in Mr. Obama’s speech:
He is right. Broad government guarantees that shifted risk of defaults away from private investors put homeowners and taxpayers at substantial risk, leading to excess debt and leverage to flow to real estate, and instead of protecting against catastrophes in the system, made them more likely.
But the President went on to call for government reinsurance of mortgage securities, payable after private capital is exhausted. Such reinsurance would ostensibly be priced so as to be self-funding. But if a reinsurance guarantee is self-funding, then why is the government needed? This new government guarantee would, like the present system, put taxpayers at risk and weaken the incentives to lend wisely.
The President does make some other recommendations that are worth pursuing, such as reducing red tape for mortgages and reducing local regulatory barriers to new housing development. But these nods to rolling back government barriers to housing are swamped by calls for expanded government. Obama calls for new funding for homeowner refinancing, money for refurbishing vacant properties and “greening” of blighted properties (including a “sizeable” amount for Detroit), new subsidies for rental housing, and funds for programs for the homeless. This wish list of new spending not only threatens taxpayer wallets but distracts from the focus on fixing housing markets.