A View of Things To Come...

So, let get this straight.

According to this, one plan for "rescuing" Fannie Mae and Freddie Mac would be to split them into the parts that do what the government should be doing and those parts that the market can do, and then selling of the market stuff.

Not too bad on the face of it.

But then it goes downhill from there.

The new administration will want to use that money to fund "Government affordable housing programs".

Two things wrong with that right off the bat.

1) The money from the bailout came from the taxpayers and should be returned to the taxpayers. It's not like the government has the money; they can only take it from taxpayers and those who buy government bonds (investors). What is happening instead is that they are going to use that huge chunk of change to permanently expand government presence in the market. Not good.

2) Don't think for a moment that this program will have enough funding. No government program ever does. This will turn from a one-off item to a permanent part of the budget, resulting in an expansion of government spending by multiple billions of dollars per year. In other words, a one-time expenditure is going to become a line item in the budget.

To quote from that link:

To many, Fannie's and Freddie's downfall confirms the conflicts inherent in their status as shareholder-owned companies with lucrative government ties. The firms' implicit government backing allowed them to borrow cheaply, spurring executives to take excessive risks in search of fat profits.

Still, that hybrid model will be tough to kill because it allows private capital to fund federal subsidies for homeownership, a cause dear to many politicians. Under a new federal housing law, a portion of Fannie's and Freddie's new business will be siphoned for an affordable housing trust fund pushed by Democrats.

In other words, the Democrats have not learned from their mistakes at all.

The Lesson of the Sub-Primes should be: do not interfere with markets for financial instruments when the government is on both sides of the equation and hence has a conflict of interest. One side wins and the taxpayer loses.

That lesson that the Democrats have not learned.