Pull the Plug - It's Time to Let Freddie Mac Go

David Moffett, the relatively new CEO of Freddie Mac, announced his resignation today. The official notice of his resignation is predictably positive. He's a great guy, Freddie Mac is a great organization, he enjoyed his time there, etc. But you have to ask yourself, why would somebody resign from a CEO position after only six months?

If you scratch below the surface, it's pretty obvious. Freddie Mac is a sinking ship. They are one of the primary reasons we had a housing crisis in the first place, and now they are sponging up billions of taxpayer dollars to try to right themselves. Who wants to be the boss of all that?

We have long supported the demise of Freddie Mac and Fannie Mae. These organizations are part of the problem, not the solution. Fannie is a relic of the Great Depression, and Freddie was born from an ill-advised attempt to create artificial competition (thanks LBJ).

By their very nature, these organizations create unstable mortgage markets. They do this by offering a secondary market for bad loans. Without Freddie Mac, for example, most primary lenders would have to keep their mortgage loans in house. If this were the case across the board, lenders would be far less inclined to make risky loans to unqualified borrowers. In other words, Freddie Mac removes the "burden" of responsible lending from the shoulders of mortgage lenders. Ask an economist (not a politician) about the causes of the subprime crisis, and at some point they will mention the secondary mortgage market.

Let me say it again, more to the point. Freddie Mac was a primary cause of the housing crisis that wrecked our economy. Now they are seeking more support from the federal government, which means it is coming out of your pocket. You should be angry about this. You should be livid. You should contact your congressman and warn that you hold them responsible for any vote they cast in this matter.

So, here we are at a crossroads in our own financial history. Freddie Mac is once more ailing from a crisis they helped create, and they want you (the taxpayer) to bail them out ... again. I say it's time to pull the plug. Fannie and Freddie are part of the problem, not the solution. They do not deserve another $35 billion in taxpayer dollars. They deserve to be put out to pasture. Could this be the reason they can't seem to keep a CEO lately? My money says yes.

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