Debra J. Saunders

In 2009, when CNBC's David Faber asked former Federal Reserve Chairman Alan Greenspan what lessons could be learned to prevent another great financial meltdown in the wake of the mortgage-financing collapse, Greenspan did not have a happy-face answer.

"Somewhere in the future we're going to have this conversation again," Greenspan replied. "It will not be for quite a period of time, but it will occur because the flaws in human nature are such that we cannot change that. It doesn't work."

Lawmakers like to talk about passing laws to ensure that -- the following should be said with a timbre of indignation -- "this will never happen again." Of course, Washington should pass and enforce regulations to prevent and minimize economic damage. But the smartest course for Washington may well be to assume that, eventually, the worst will happen and to focus on:

(a) How Washington can minimize the damages to taxpayers and

(b) What regulatory changes can be made quickly that will not unduly shock the housing market.

The experts don't always know the answer. As the Obama administration's report "Reforming America's Housing Finance Market" noted, when housing prices began to turn in 2006, "Almost no one in the housing finance market was prepared."

The good news now: Obamaland is clear on the concept that the best way to minimize taxpayer losses is to minimize taxpayer exposure.

The report, written by the departments of Treasury and Housing and Urban Development, smartly pledged to cut back and ultimately "wind down" Fannie Mae and Freddie Mac, the giant government-sponsored enterprises that now back about 90 percent of new mortgages. The Wall Street Journal editorial page wrote of the Obama report, "It's enough to make you believe in miracles."

The document does not blame the meltdown on Fannie Mae and Freddie Mac. Private institutions, it observes, were the trailblazers in subprime mortgages, while delinquency rates on private-label securities "were far higher than ... loans held by Fannie Mae and Freddie Mac."

Even still, it notes, the Treasury -- this means the taxpayers -- has had to put up more than $130 billion to cover Fannie's and Freddie's losses.

It's time to return private mortgages to private banking. And it's time for lending to return to standards that limit risk. Hence the Obama administration's call to raise minimum down payments for Fannie and Freddie loans to at least 10 percent and to increase the price of Federal Housing Administration mortgage insurance.

The report offers "three possible courses for long-term reform."

Debra J. Saunders

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