Who will be the loudest voice to proclaim this proof that the government must rescue us from a market failure?
The Treasury Department seized control of Fannie Mae and Freddie Mac, the nation’s giant quasi-public mortgage finance companies, and announced a four-part rescue plan that includes an open-ended guarantee from the Treasury Department to provide as much capital as they need stave off insolvency.
When even the New York Times realizes that Fannie and Freddie are quasi-public rather than quasi-private, there can be no defense for the failure of the private market. Lawmakers encouraged these two to grow into the mess they are now through poor oversight and perverse incentives. When organizations exist where subjective, politically-favored goals matter more than objective, profit-driven goals, the private market has nothing to do with the organizations.
To be fair, I will not attribute this solely to government failure. I do not concede that the private functions are failing, though, because they are signaling exactly what they’re supposed to be signaling – there was too much cheap and irresponsible money in the mortgage market. This should be a lesson learned. I doubt it will be, precisely because neither is being allowed to fail. Perhaps that’s the right decision; I do not claim to know. But we shouldn’t be here.
Should we move next into discussing American automakers?