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.
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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.
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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.