Thursday, August 6, 2009

Fannie-Freddie Divorce?

According to a story by The Washington Post on Thursday, the Obama administration is considering an overhaul of Fannie Mae and Freddie Mac that would likely split the mortgage finance giants and strip them of billions of dollars in bad loans.

I'll leave the details to the article itself (because frankly, there are parts of it that I still don't understand), but on the surface this seems like a good move. The mortgage crisis is but one of the factors that led to this recession, and Fannie Mae and Freddie Mac were a large part of that. Of course, the connections between those two firms and Rep. Barney Frank (D-Mass.) and Sen. Chris Dodd (D-Donn.) are impossible to ignore, which makes them partly to blame for the financial downfall, even though these companies now have private shareholders.

Still, splitting up these two mortgage giants makes sense. It does beg the question, though ... why not do the same to banks and other financial institutions? Why are they deemed "too big to fail," while the administration can toss around the notion of splitting up Fannie and Freddie? I happen to think that if a company is "too big to fail," then it's probably too big period.

Then again, given the Wall Street contacts within the administration -- I'm looking at you, Timothy Geithner and Larry Summers -- I guess it should come as no surprise that the White House would look to bail out those firms.

Still, such a split occurred with AIG, a move that should provide benefits in the long term. Applying that to the banks deemed "too big to fail" might be a smart move ... but like I said, those in the White House who could authorize such a thing would never hear of it. Which is a shame, because breaking up huge corporations that have been poisoning Wall Street is one of the best ways to help those of us on Main Street.

Still, breaking up Fannie Mae and Freddie Mac is a positive step.

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