The bailout of Fannie Mae by the government is probably a necessary but bitter pill. All of this reminds me of the bailout of the S&L industry under George H. Bush.

Both of these problems were a long time in the making, and could be attributed to poor government fiscal and monetary policy, weak regulation, as well as greed and hubris in the financial industry. The financial industry like to believe they can make value appear out of thin air. Thirty year old mortgage bankers with private jets deluded themselves into thinking they had somehow earned them.

I believe these bailouts were inevitable, and wise in the long run. But they come at a severe cost. The taxpayers will be paying for these huge bailouts for years to come. These losses are here today because the regulators bowed to political pressure to allow ridiculous practices in the industry for way too many years.

While many blame greedy unfettered capitalism, Freddie and Fannie were government creations, government chartered, exempt from SEC regulation and subject to special Congressional oversight. The failure to supervise this entity lays directly in Congress’s lap.

Freddie and Fannie had special priviledges endowed by Congress. They could borrow money cheaper than any private company, and they were tax exempt. It takes real hubris and neglect for them to screw up this advantage. Congressional favors were traded like cheap stocks.

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