Do you have a crazy aunt and uncle in your family? Do you remember the crazy uncle from National Lampoon’s Christmas Vacation played by Randy Quaid? They love to drop in unexpectedly and like they’re so glad to see you. But, the truth is that they want to “borrow” money. Even though, they have no intention of paying you back.
You can think of Fannie Mae and Freddie Mac as your resident crazy aunt and uncle. They’re struggling, and the United States will not let them fail. The reason they won’t let them fail is because they let these two organizations get too big. Fannie Mae and Freddie Mac are government run, private institutions. Doesn’t that sound like an oxymoron? It was doomed to fail from the beginning. Now, they own or back about half of the $12 trillion dollar mortgage market in the United States.
This article coming from the AP via Yahoo Finance outlines the ramifications of the Freddie Mac and Fannie Mae bailout. The biggest problem with all of these bailouts is the message that it sends to aspiring entrepreneurs around the world. The message is this: “If you start a company that becomes so big that it affects not only a large amount of customers, but the country’s economy, we’ll bail you out.” This is not pure entrepreneurialism. The idea of entrepreneurship is that you take a risk to receive a reward in the form of profit. If the government knew that they would never let Freddie Mac and Fannie Mae fail, then they should have never made it a “private” institution that took on half of the mortgage risk in this country. The government is poisoning our economy. The more government that’s injected into our economy, the more it continues to fail. A true free market will correct itself when supply and demand do not match up. When people take advantage of the free market (i.e. mortgage lenders and real estate agents), the market will compensate for the over-valuation.
My point is that we will be the ones to bail out these companies, not the government. The government has no problem spending more money, because it’s not their money. This election year, vote for politicians with fiscal responsibility, because the people you vote for will make decisions that directly affect your pocket book. The blame goes to both parties. Both parties are responsible for trying to expand the government role in our economy. The economic system in this country is fine. It doesn’t need help. But, everyone jumps ship when the housing market dives or gas prices spike. During a time of instant gratification, it doesn’t surprise me that the government looks for a quick fix. We are a culture that demands instant satisfaction, when in reality, if we let the free market work itself out, it would be better off. More bureaucracy equals more taxes, more headache for you, and less money in your pocket. Think about it, and comment on your thoughts below.