GO
Loading...

After Fannie and Freddie—Who's next?

It appears as if Washington, D.C., is near an agreement to wind down Fannie Mae and Freddie Mac. Investors in these assets surely are not thrilled with this news, but for others, this is a positive sign. Financials, and in particular banks, now have a new market to pursue and new profit opportunities.

The bailouts handed to these agencies (close to $200 billion) make the rescue of Detroit seem like a rounding error. Fannie Mae and Freddie Mac pushed out to the private sector is finally a recognition by the federal government that they simply can't control the real-estate market and artificially increase home ownership numbers.


Andrew Harrer | Bloomberg via Getty Images

Private institutions are the foundation of this country and governmental intervention, while it may have its role in some cases, simply does not provide for the best alternatives. And in an effort to spur home-ownership levels, huge mistakes were made for Fannie Mae and Freddie Mac.

(Read more: Impact of Wall Street as landlords)

The privatization of these two pseudo-government agencies suggests that we are actually learning lessons from the financial crisis. Regulation is important but government control is corrosive. Lack of government control will lead to a stronger financial system longer term. There is no reason why financial institutions with proper oversight cannot step in and handle mortgage issues at least as well as Fannie Mae and Freddie Mac. This will be a positive for the economy as well as the housing market long term.

I recognize situations like AIG and their derivatives-trading disasters must be addressed by regulations. But a financial sector driven by private firms is the best method of making sure a competitive environment occurs in the market and competition is not only good for consumers but investors as well.

For that reason, investors will want to examine the financial sector for investment opportunities as institutions will line up to take the place of Freddie Mac and Fannie Mae. This, coupled with rising rates in the future (that will positively impact net interest margins) should help earnings for financial companies. And advancing earnings usually mean advancing stock prices.

Look at Citigroup, Goldman Sachs and J.P. Morgan. Granted they've been in the headlines over the last several years for some of the wrong reasons, but these are opportunistic institutions that I believe will take advantage home financing privatization.

(Read more: Google to invest $50 million in real estate site Auction.com)

Some of you may think that this is inherently evil that the spoils of agency privatization will fall to private enterprises. I suppose it's the lesser of two evils. Would you rather have the government running a financial system which has not worked or trust the competitive, free-market system competing for the opportunity to provide financing to homeowners? My vote is to allow private institutions to do what the government has failed to do successfully. I believe that allowing the creativity and ambition of private companies will prove vastly superior to government efforts.

Let's hope that other agencies are further pushed towards the private sector (or at the very least cuts implemented) coupled with rational regulations. With current federal government expenditures at 22 percent of GDP, the United States needs to recognize that economic growth best occurs in the private sector, not Washington, DC. The US Postal Service and Air Traffic Control are just two of the organizations that could very well benefit from privatization. There are many departments ripe for cuts or privatization. It simply requires the political will and foresight to take action prior to a disaster rather than after the fiscal carnage.

(Read more: Home ownership is for suckers: Schoenberger)

Particularly given current deficit issues, moving sinkhole agencies off the Fed's balance sheet can only be a positive for GDP growth.

—By Michael A. Yoshikami

Michael A. Yoshikami is the CEO and founder of Destination Wealth Management in Walnut Creek, California. He is also a CNBC contributor.

Contact Real Estate

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    To learn more about how we use your information,
    please read our Privacy Policy.
    › Learn More
  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

Latest Special Reports

  • Financial advisors stress that now is the time for investors to get serious about year-end financial planning checkup.

  • File photo: Participants at a hacking conference in Germany

    A series of high profile cyber attacks has created huge economic opportunity as businesses look to fend off future attacks.

  • Is an active twist on passive investing the right portfolio move? An inside look at the rise of ETF strategists.