Fannie Mae and Freddie Mac are unlikely to figure prominently in any congressional or senatorial race this fall, but maybe they should—at least symbolically. Let me explain.
Fannie and Freddie are the GSEs—the government sponsored enterprises—that helped exacerbate the housing bubble and then helped exacerbate the collapse. They didn’t originate mortgages. But they bought them—to the tune of trillions of dollars— and held some and securitized the rest.
When the housing market collapsed, and along with it the securitized mortgage market, Fannie and Freddie became insolvent and were put into government conservatorships in September 2008, where they remain.
Fannie and Freddie are likely to represent the largest cost to the federal government of any of the rescue actions of 2008 and 2009. As of this summer, the two GSEs had absorbed over $150 billion of federal funds, with the prospects of much more being needed and very little of it ever being paid back.
Fannie and Freddie are symbolic of the excessive resources that the American political system has devoted to housing, through subsidies such as special tax breaks for home ownership and for housing construction, as well as the implicit subsidy that went along with being a GSE.
In this latter case, although Fannie and Freddie were private enterprises that had their shares traded on the New York Stock Exchange, their extensive ties with the federal government convinced their creditors that the government would ride to their rescue if the GSEs ever experienced financial difficulties—which turned out to be a correct prediction in September 2008.