I’ve spoken before of my dislike for public/private hybrid organizations, including public universities, and my laissiez-faire attitudes toward government involvement with business. The fact is that when government involves itself with private business—whether by endorsing public/private hybrids or bailing out private businesses—it rarely ends well for anybody, least of all the taxpaying public.
Well, like Amtrak and the Postal Service before them, two of the largest ‘government sponsored enterprises’—the Federal National Mortgage Association (‘Fannie Mae’) and the Federal Home Loan Mortgage Corporation (‘Freddie Mac’)—have come upon hard times. These two monstrosities were created in the 1970s to increase the money available for home-buyers, which is a fine goal, but it is a goal that should be met by private industry not by government sponsorship. Now, feeling the pinch of the so-called mortgage ‘crisis’ they (and poorly educated home-buyers) helped create, Fannie Mae and Freddie Mac are the happy recipients of government aid to shore up confidence in their solvency.
Like past bailouts, the government won’t be able to do anything but delay the inevitable without these companies changing from within. That’s why the government shouldn’t bail companies out, nor should the provide funding to failing hybrid public/private organizations. Bailouts/investments simply allow these companies to continue operating in a flawed, unprofitable way (e.g., Amtrak). The government should let Fannie Mae and Freddie Mac succeed or fail on their own merits. If they fail the market will pick up the pieces on its own and move on. But, more likely, teetering on the brink of bankruptcy without a taxpayer-funded safety net will be a big incentive for Fannie and Freddie to get their acts together on their own.