Poor judgment (both financial and ethical) caused catastrophic damage to the mortgage industry and now the United States government plans to step in and save Freddie Mac and Fannie Mae.
On one hand, this seems like something that simply must be done. Between them, the two companies hold a vast number of mortgages (about half of those in America) and their collapse would do even more damage to an already damaged economy. Since one role of the government is to protect the citizens, stepping in seems justified.
Of course, there is a certain irony in a Republican government taking what might seem to be a form of socialism. Then again, it could also be seen as pure capitalism: two failing corporations cleverly drain the American taxpayers in order to make up for their own failings.
On the other hand, bailing out the two companies seems to be a bad idea. While there is a clear need to prevent financial chaos, stepping in like this sends the message that if a major company screws up, they will be thrown tax dollars in order to keep them going. Ironically, the Republican party is devoted to opposing welfare-that is, to helping out individuals. However, they seem happy to engage in corporate welfare by dumping millions of dollars into Freddie Mac and Fannie Mae. Naturally, the conservative arguments that are used against welfare (it makes people lazy, destroys incentive, wastes taxpayer dollars and so on) should certainly apply to corporate deadbeats like Fannie Mae and Freddy Mac. As a conservative might say, they need to pull themselves up by their bootstraps and start earning money.
An insightful post. However you’ve confused Sallie Mae (the student loan provider) with Fannie Mae. The feds are not bailing out Sallie Mae. At least not at this point.
Whoops. That will teach me to write a blog after teaching all day and then repainting my guest bathroom. Ah, paint fumes.
Thanks for noticing and correcting my error. Hopefully, Sallie Mae isn’t failing.