Taxpayers are now in the process of bailing out the “Government-Sponsored Enterprises” — the mortgage giants Fannie Mae & Freddie Mac — to the tune of tens of billions of dollars. The GSEs have long received subsidies that cost taxpayers around $10 billion per year. As their very name suggests, the GSEs, which were created by the federal government, did not originate in the private sector. And federal oversight of these entities, far from curbing their gambling at taxpayer expense, actually promoted it, by justifying purchases of risky mortgages as promoting “affordable housing” and “diversity,” as even some supporters of a broad federal role in housing now concede.
But to the New York Times, and its liberal readership, the failure of Fannie & Freddie, both of them “Government-Sponsored Enterprises,” shows that free markets just don’t work, as yesterday’s New York Times editorial and today’s letters to the editor show.
Paul Davidson, a liberal New Jersey academic, claims that Fannie & Freddie failed because of a ”political system“ that “encouraged free market behavior.” New Yorker Leo Montagna claims that “the most significant lesson to be learned from the bailout of Fannie Mae and Freddie Mac is that it disproves the idea that free markets can in and of themselves function efficiently.” John S. Koppel claims that the GSEs’ mismanagement and failure is a “disaster of capitalism.”
These claims are ludicrous, given that Fannie Mae’s own former CEO, fraudster Franklin Raines, has often identified “free market ideologues” as being opposed to Fannie Mae’s very existence, and has attacked the “free market” whistleblowers who long warned about the dangers to taxpayers of Fannie Mae’s risky practices, as I earlier noted in the Washington Post.
Candida Pugh of Oakland blames the GSEs’ running amok on the “Reagan Revolution.” This is an especially absurd claim, since Reagan Administration officials like Peter Wallison, White House Counsel to President Reagan, have been warning the public for decades about the dangers to taxpayers and our economy of Fannie & Freddie, and the need for reform, while liberal lawmakers have blocked needed reforms of Fannie & Freddie at every turn, while actually expanding its ability to gamble at taxpayer expense.
The inability of the Times and its like-minded readers to draw the correct lessons from history, even when they are painfully obvious, reminds me of the law school applicant whose application I read years ago, who, even after the fall of the Berlin Wall and tens of millions of deaths from communism, chose to write her application essay about the ”great thinker, Karl Marx.” (Alas, she was accepted anyway, despite having mediocre grades and test scores).
Many in the media simply refuse to accept that the GSEs are not private-sector entities. When Alaska Governor Sarah Palin said that Fannie and Freddie had “gotten too big and too expensive to taxpayers” — without voicing any opinion on whether they were public or private — bloggers and the New York Times staffers were quick to claim in response that Fannie and Freddie were “private-sector” entities that do not cost taxpayers a penny. (In truth, bailing out Fannie and Freddie may cost up to $300 billion, and the preferential treatment they have long received already costs the taxpayers around $10 billion a year. Taxpayers were already “on the hook“).