The back and forth over the apparent lifting of any limit on government capital available to Fannie Mae and Freddie Mac shows no sign of ending, as the blogosphere seems to be trying to fill in the blanks left by the Treasury's cryptic Christmas Eve announcement.
It still looks to us as if the announcement amounts to an acknowledgement that the housing market is still in serious trouble, as the governmental blank check for the two agencies came only days before Fannie reported that the rate of "serious" mortgage delinquencies on single-family homes rose yet again in October.
Bloggers Paul Krugman, Tim Duy, and Dean Baker all pretty much agree that the limitless backstop is designed to prop up the housing market one way or another.
The thing is, as my colleague Matt Quinn just reminded me, the stocks of Fannie and Freddie have risen something like 20 percent on the news. Yet these two companies are now fully controlled by the U.S. government, with the assets put in "conservatorship" more than a year ago.
No longer, that is, are they quasi governmental agencies, that is, privately run companies with a public mandate. They're government agencies, period. And they have been since the fall of 2008. So why are they being operated like private companies?
To paraphrase something Matt just said, the reason seems to be to let their managers pay themselves like they aren't government agencies. And as he wrote a while back in connection with Fannie, that's just not kosher.
For my part, I'm perfectly fine with the two agencies riding to the rescue of struggling homeowners during hard times. After all, that's their original purpose (as opposed to spreading the blessings of homeownership to those who can't afford it in the midst of a credit bubble, not that Fannie and Freddie were the primary supply-side villains in the subprime mess). And to the extent their largess helps to stem foreclosures, it benefits the taxpayers who own them.
But there's no reason any more money should be going to their managers than would go to the head of any other government agency. Nor should investors be able to bank on a taxpayer subsidy.
Either privatize these entities or run them like agencies. Maintaining the fiction instead that they are somehow still private enterprises with a government mandate is yet another example of the corrosive blend of crony capitalism and inefficient socialism that has characterized the bailouts of Bear Stearns, Citigroup, Bank of America and AIG (not to mention Goldman, European banks, and other AIG counterparties).
It's long past time to end both the cronyism and the inefficiency.