POLITICS MAKES strange bedfellows; when you mix politics with money, it makes for unholy alliances. Case in point: the push by Wall Street hedge funds and low-income-housing advocates to “recapitalize and release” Fannie Mae and Freddie Mac, the collapsed public-private mortgage-finance giants, which were nursed back to profitability with the help of $188 billion in taxpayer funds.
These unlikely allies want to end government control of the two entities and put shareholders back in charge, as if their collapse and federal bailout in 2008 had never happened. The hedgies covet the multibillion-dollar windfall that would accrue to them if the Fannie-Freddie shares they bought for pennies after the bailout suddenly became marketable again. Housing advocates, more admirably but, in policy terms, no less misguidedly, want Fannie and Freddie back as sources of support for federal housing programs.
Amid all the harrumphing about shareholder property rights and helping the poor, you could almost forget that what this coalition seeks is essentially the same cockeyed enterprise structure — privatized profits, socialized risks — that helped set Fannie and Freddie on the road to disaster in the first place.
In that sense, the $1.1 trillion omnibus spending bill is a major victory for taxpayers, despite its headline cost. Tucked into the massive measure was a provision, co-sponsored by Sens. Bob Corker (R-Tenn.) and Mark R. Warner (D-Va.), that would prohibit the Treasury from divesting its stake in Fannie and Freddie for two years. Together with a previous enactment that blocks Congress from using any increased Fannie and Freddie securitization fees to offset federal spending, the provision means that lawmakers have managed to freeze the status quo until the next Congress, and a new president, take office.
To be sure, this perpetuates an unsatisfactory situation in which what was supposed to be temporary direct government supervision of mortgage finance has taken on a decidedly permanent cast. However, the specter of recap and release has been banished, not only in Congress but also, probably, in the courts; judges have so far not looked very favorably on hedge-fund lawsuits on the issue, and they are less likely to do so now that Congress has so clearly expressed its will. Indeed, the Obama administration already is on record opposing recap and release. Two years should be more than enough time to prepare legislation that does the right thing with Fannie and Freddie — that is, replace them with a new system of mortgage finance relying on the private sector to handle more of the risk while directly subsidizing legitimate low-income housing as needed.