And of course, the government will bail them out.
Freddie and Fannie are the ultimate “too big to fail” companies. It’s beyond ridiculous that congress formed a private/public company.

As the late, great Carl Sagan might (not) have said, trillions and trillions….
Actually, I’m not convinced that most people can really imagine millions, let alone trillions. Of course, having taught math for decades, I notice that math concepts that seem abstract suddenly resonate with students when I teach them in terms of money. Therefore, if we wind up experiencing Weimar Republic or Zimbabwe-style inflation (where it might literally take hundreds of thousands to buy lunch, billions to buy a car, and trillions to pay the mortgage), maybe such numbers won’t be unimaginable. Let’s hope they remain abstract….

Freddie and Fannie have been taking bad loans from the banks at par (it’s a backdoor bailout), leaving the taxpayer holding the bag.

That’s the most absurd and arbitrary non-argument imaginable; human economic growth should be based on the average human capacity for numbers rather than, say, the size and status of human population.
Big numbers are scary? Sure. But think about it- $1 trillion is less than $170 for each person on the planet. Given the current scope of humanity, it really is a comparatively trivial amount.If you just look at the US population it’s a little over $3000/person being dumped into a program that’s essentially designed as a product linked subsidy for poor people.
Now it’s well worth arguing over whether home ownership is something that brings enough economic benefits to deserve a subsidy, but that’s separate from pointing out that it needs a significant amount of funding to do what it’s supposed to do, especially if it’s lowering the total interest costs of buying a house for people by at least that much.

It would be interesting to go back in time somehow and compare what today’s critics of Fannie and Freddy were saying back when various administrations were touting the number of people owning their own homes as a sign of strong economic growth. Were they pointing out the problems with this arrangement then, or did they jump on the “ownership society” bandwagon with most of the rest of our political leadership?
Once again the cult of home ownership bites us in the hindquarters.

“That’s the most absurd and arbitrary non-argument imaginable;”
Did you see the comment by “Your Name” above yours? Pretty sure that wins.
“human economic growth should be based on the average human capacity for numbers rather than, say, the size and status of human population.”
First of all, this is a bailout, which has nothing to do with growth. Second, the point is not that big numbers ought to restrain growth, but that the American public is going to lose faith in a government that spends without accountability. Alternately, they will begin to see massive figures as harmless expenditures, which relieves government of accountability.
“Big numbers are scary? Sure. But think about it- $1 trillion is less than $170 for each person on the planet.”
There are six billion people on the planet, most of whom don’t even have $170. This is irrelevant, since there are just over 300 million people in America, which is footing the bill for this. This bailout alone is costing a family of four $13,000. That’s plenty scary.
Or, as you put it…
“If you just look at the US population it’s a little over $3000/person being dumped into a program that’s essentially designed as a product linked subsidy for poor people.”
If Americans understood it that way, almost all of them would call for dismantling Fannie and Freddie as soon as possible.
“it needs a significant amount of funding to do what it’s supposed to do,”
It hasn’t done what it is supposed to do. It has done what is in the best interests of it’s wealthy, well connected executives. As a result, the poor people it was supposed to help are in foreclosure. I don’t want $3,250 of my own money lining the coffers of Barney Frank’s latest boy toy, thank you very much.

“If you just look at the US population it’s a little over $3000/person being dumped into a program that’s essentially designed as a product linked subsidy for poor people.”
If Americans understood it that way, almost all of them would call for dismantling Fannie and Freddie as soon as possible.
Yes, they should paint it as a subsidy for rich people instead. That would make it much more acceptable. Actually, I’m not even sure I’m joking here.

“It would be interesting to go back in time somehow and compare what today’s critics of Fannie and Freddy were saying back when various administrations were touting the number of people owning their own homes as a sign of strong economic growth.”
Bush presented an oversight bill (sponsored by Jon Corzine), but it didn’t make it out of committee. The bill was reintroduced in 2005, after Franklin Raines used the company as his own private piggy bank.
Rep. Richard Baker tried to investigate Fannie and Freddie before the Franklin Raines scandal, before the turn of the century. He noted that the failure of Fannie and Freddie would make the S & L scandal look trivial by comparison. He was right.
But, again, Fannie and Freddie were extremely well-connected, which is what happens when you have government creating companies.

“Yes, they should paint it as a subsidy for rich people instead. That would make it much more acceptable. Actually, I’m not even sure I’m joking here.”
Right, because the bank bailouts were really popular. It’s not as though the galvanized an organized protest movement or anything.

The other day a friend told me about a money manager who had half a billion dollars to invest and “can’t find anyplace to put it.” I refrained from making literal or figurative suggestions, not necessarily in that order.
In both public and private sectors, the dollar figures have gone off the charts. We’d better stop fixating on the numbers and start thinking about what all this money buys, or doesn’t buy while it sits in accounting limbo.

a program that’s essentially designed as a product linked subsidy for poor people.
that reflects a real misunderstanding of what Fannie/Freddie are -
Before fannie and freddie – few people were homeowners (pre 1938). In order to buy a home you had to put about half down and pay the remainder in 5 years. The long term amortized mortgage that we have now was made possible by Frannie/Freddie. Without F and F – a bank could only lend in mortgages essentially what it had in deposits but what happened after F and F was created was that F/F buy the mortgage from the bank – thus freeing the bank to lend out more mortgages and allowing for those 20 and 30 year mortgages.
The program was part of the New Deal and was designed not just to allow more Americans in the middle and working class to own homes – it was designed to expand that housing market hence create jobs in home construction etc. and get us out of the Depression. It was not designed as a project for the poor. It was not until recent years that F and F started initiatives to promote low income home ownership – which was also part of an urban renewal strategy. Even now – F and F is not primarily for low income housing – it supports the entire housing business in the US. More than 50% of all home mortgages are owned by F and F – and even the most hard core “it is all because of the poor” believer cannot think that 50% of all mortgages are in the hands of low income earners.
If you own a home which you bought with a mortgage – you could thank Fannie and Freddie. If the amounts of “bad” mortgages that F and F now hold really bother you – say thank you to those moronic elected officials who thought de-regulation of the housing and banking industry was such a nifty idea. Since the government was always on the hook (actually – we were on the hook) for any failure by F and F – more diligence re: the housing industry was surely called for.
The US housing industry accounts for 14%- 20%of GDP – that is one huge industry hence its collapse taking down most of the rest of the economy. For those who think getting rid of home ownership is a great idea – what industry do you suggest we create to replace 14%-20% of GDP?

The Fannie/Freddie bailout will almost certainly not cost one trillion: for that to happen every mprtgage the GSEs hold would have to go bust. Which is about as likely as every car on the road konking out at once.
So far, the various bailouts have not cost anywhere near what was initially predicted in sensationalizing news stories. The GSEs will be expensive, because they were where the buck stopped with most mortgages, and there’s simply no where else to pass the bad one on at this point. But if Fannie and Freddie did not exist those bad mortgages would be on someone else’s books and we’d be bailing them out instead.
By the way, don’t anyone misinterpret this as saying “We don’t need to do anything about them” because I think we do: we need to rethink, even radically rethink, how we finance housing in this country. But I don’t believe there’s any magic potions going to save us from the draining every last bitter drop of the housing bust in the meantime.

Come on now Cecelia. The government should not be in the business of subsidizing the poor, middle class, or rich people or any segment of our economy.
Thank God the Obama administration and congress haven’t taken radical measures to try to reinflate the housing market.
Construction workers, real estate agents, and others in that industry will have to adapt to new career paths. My guess is that a lot of them will have to find work in the health care industry, which is booming due to demographic shifts.
It just doesn’t make sense as a country to try to reinflate the housing market.

Cecilia, ditto. Well put.

Right, because the bank bailouts were really popular. It’s not as though they galvanized an organized protest movement or anything.
An organized protest movement that was quickly and easily co-opted by the elite to convince the protestors that what they were really angry about was the prospect of people poorer and darker-skinned than themselves being able to afford medical treatment when they got sick.