Obamacare’s recent hiccoughs shed new light on the secondary mortgage market debate, according to ProPublica columnist, Jesse Eisinger.
Paul Krugman attributes the Obamacare fiasco to what he calls “the big kludge”. It is a complex hybrid of public and private services, cobbled together to both serve the public good and appease conservative anti-government ideologues.
This is perhaps the fatal flaw of the Affordable Care Act, according to Eisenger. It attempts to accomplish a social goal based on equality via a private marketplace that functions on competition and risk. This contradiction is easily mapped on the discussion of mortgage market reform.
The dominant voices in the debate call for a dissolution of Fannie Mae and Freddie Mac in favor of a completely private secondary mortgage market. Even the moderate, more progressive voices loudly acknowledge that private dollars ought to cover a greater share of the public risk. In other words, mortgage market reform has great potential to shape up like another big kludge.
Eisenger makes the “radical” proposal that Fannie Mae and Freddie Mac become full-fledged public corporations, permanently. And why not? The government’s role in housing policy is unavoidable. Real estate is so central to the wealth, productivity and security of the citizenry that any future collapse of the mortgage market, whether government-run or not, is ultimately the government’s responsibility.
Further, it provides greater transparency. Currently, Fannie and Freddie’s status as government-sponsored enterprises (GSEs) confuses the issue of their balance sheets. While it’s clear their loans are fully guaranteed by the U.S. government, their profits are technically private, then “repaid” to the Treasury.
Fannie and Freddie are in limbo. If the rollout of Obamacare has taught us anything, it’s that effecting change on a massive scale is messy and requires much more planning than we thought.
Eisinger poignantly notes:
The kludge consensus may happen to be the best solution. But it’s hard to tell because we don’t hear other visions. Housing was central to the financial crisis. If any topic should generate a full spectrum of radical and imaginative ideas, this is it.
What do you have to add to the conversation about Fannie and Freddie’s fate?