North Star Writers Group - Syndicated Commentary: Opinion, Humor and Features

September 15, 2008

Marching to the Altar With Ugly Fannie

Look, it’s been a long time, but no, that Fannie Mae you’ve been reading about is definitely not the girl you took to the prom.

Her name was Mary Beth (or Tiffany, if you’re under 30). And I can assure you, she had a lot fewer zits.

Because the Fannie Mae that Uncle Sam toted to the altar last week is not only coyote ugly, but also the loosest babe since Ruby took her love to town.

Along with Fannie’s name, you’re surely hearing that her emergency takeover by the government is a “good thing.” Uh huh.

Gold-plated rule number one: When you hear the government is taking over anything, it's time to hide the silverware and start shuffling assets to the safe deposit box.

No offense to Bristol Palin, but shotgun weddings are almost never a good thing. They mean someone has been behaving badly. And in the case of Fannie, the feds and mortgage bankers, that's several someones.

In case you didn’t know, Fannie Mae’s cute-as-a-button nickname stands for Federal National Mortgage Association. A federally chartered but private-sector corporation, Fannie buys up scads of mortgages from lenders, wraps them into neat little “mortgage-backed securities” and peddles them to investors in friendly places like China and the Middle East.

The idea is that, once banks off-load the mortgages onto Fannie, they’ll have more money to shower upon would-be homeowners who will become actual homeowners, which our eager vote-buying solons in Congress consider another very good thing.

All this may sound complex – exactly what economists want you to think. Well, I’m not pretending to be an economist (and I don't play one on TV).

But it doesn’t take an economist to see that Fannie’s shenanigans involve a very simple, textbook case of overgrown boys playing with good old OPM – Other People’s Money. In this case, yours.

The law never explicitly said so, but Congress has long led investors to believe that Fannie’s federally chartered status placed the government’s “full faith and credit” behind her.

In other words, kindly Uncle Sam hands Fannie and her friends a credit card. Be good girls, he says. Don’t spend more than you can afford, and for sure, don’t overspend the limit.

And then whispers (with a wink): If you do, I’ll pay it off.

Whoa! I’m coming out, so you’d better get this party started! Toga! Toga! Toga!

Soon you have a bevy of giddy bankers cavorting with Fannie, her heady hoard of cash and super-sized portfolios of zero-interest loans (not to mention Congress-types benefiting from lobbyist favors and campaign gifts). Things go too far, and whole bunches of those actual homeowners they finance turn out to be never-should-have-been homeowners.

Someone spills the economic punch bowl – they always do – and bunches more become used-to-be homeowners who walk away when their bubble-bought castles turn “upside down” as well.

Yikes. Party’s over, and Fannie’s stuck with that big credit card bill. How big? Well, to paraphrase the late, great Everett Dirksen, a few hundred billion here, a few hundred billion there, and soon you’re talking real money overhanging the market.

Enough to make Fannie’s foreign Sugar Daddies very nervous. Nervous enough to consider dumping other U.S. holdings. Thereby collapsing our stock market (bye bye, 401k). And drying up any remaining mortgage money (adios, home equity).

Haul out the shotgun. Cue the Wedding March. And pull out your checkbook.

And yes, you’ve seen this movie before. In widescreen and Technicolor. When federally insured savings and loans partied with OPM in the 1980s, their bailout only cost taxpayers around $125 billion – a relative bargain compared to Fannie’s antics.

Now, the economists’ term for OPM is “moral hazard.” But I have a different name for it: Bad government.

Bad government puts your money at risk, while promoting the fiction that it is doing good things for you when everyone knows the opposite is the case. Even as it hands Fannie your credit card, bad government allows the tax code to further encourage three-person households to live beyond their means in five-bedroom McMansions, heat up markets and ultimately make housing less affordable and accessible.

Don’t look now, but as we speak, the same brand of bad government is doling out low-interest loans to auto companies badly marketing the wrong cars and paying people not to work. And Fannie’s congressional patrons are plotting ways to jump-start the party again.

In an extraordinary Wall Street Journal op-ed, longtime Fannie nemesis John McCain (along with Sarah Palin) responded to her nuptials by promising, “In the first 100 days of our administration, we will look at every agency and department and expenditure of the federal government and ask this simple question: Is it serving the needs of the taxpayer? If it is not, we will reform it or shut it down . . .”

That would be good government. But we’ve seen candidates make similarly sincere pledges (1976? 1994?) – then run smack into the permanent Washington party-hearty establishment and get flattened.

In the end, we always end up with Ugly Fannie at the prom, or worse yet, the altar. And the bill.

Can it be different this time?

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