When questions began to arise about government policy that intimidated lenders into making high-risk loans, we received congressional assurances. At hearings investigating the solvency of Fannie Mae and Freddie Mac, Rep. Barney Frank said, ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.'' In a speech to the Mortgage Bankers Association, Frank advised, "People tend to pay their mortgages. I don't think we are in any remote danger here. This focus on receivership, I think, is intended to create fears that aren't there." Protesting against greater controls against lax mortgage lending, Sen. Harry Reid said, "While I favor improving oversight by our federal housing regulators to ensure safety and soundness, we cannot pass legislation that could limit Americans from owning homes and potentially harm our economy in the process."
One-third of the $15 trillion of mortgages in existence in 2008 are owned, or securitized by Fannie Mae, Freddie Mac, Ginnie Mae, the Federal Housing and the Veterans Administration. Wall Street buyers of repackaged loans didn't mind buying risky paper because they assumed that they would be guaranteed by the federal government: read bailout from the taxpayers. Today's housing mess can be laid directly at the feet of Congress and the White House.
Congress and the White House aren't finished with the taxpayers yet. Once a bailout parade gets started, it has a momentum of its own. President Bush, citing danger to the economy, signed a $17 billion bailout for the auto industry. According to the Wall Street Journal article "Shovel-Ready on Campus" (December 17, 2008), presidents of 36 state government universities have called for bailouts; they call it a "federal infusion of capital." Soon, if not already, state governors and city mayors will descend on Washington seeking bailouts. California is $15 billion in the hole, Florida $5 billion and things are so bad in Michigan that the governor has shut down one prison to save money.
What kind of assumptions do politicians and news media make about the intelligence of Americans to expect us to buy the idea that our current mess results from deregulation and free markets? I do not find that assumption flattering.