Wednesday, December 11, 2024

Would the Separation of the US Government from Freddie Mac Be a Good Thing?

By Bobby Darvish, Iranian-American Ex-Muslim, Former Vegan, Former Democrat, Former Socialist, Former CAIR-Columbus Executive Director, Former Muslim Forum of Utah President, Former Pagan, Christian Conservative LDS Priest

The question of whether the United States government should separate itself from Freddie Mac is one that has been debated for decades. As an Iranian-American with a unique background that spans various political, religious, and ideological perspectives, I have come to understand the value of evaluating this issue through multiple lenses: economic, political, and moral. Having worked at Freddie Mac and observed firsthand the relationships between the government and this quasi-public entity, I believe it is time to ask whether such a separation would be beneficial for the American people.

The Historical Context of Freddie Mac

Freddie Mac was established in 1970 as part of the Federal Home Loan Mortgage Corporation, designed to support home ownership by providing a secondary market for mortgages. In simpler terms, Freddie Mac purchases home loans from banks and other lenders, then packages and sells them to investors. This process makes more capital available to lenders, allowing them to offer additional loans to homebuyers. While this system has played a crucial role in maintaining the liquidity of the housing market, it has also led to significant government involvement, particularly during the housing crisis of 2008.

When Freddie Mac and its counterpart Fannie Mae were placed into conservatorship under the Federal Housing Finance Agency (FHFA) during the financial crisis, the government effectively took control of their operations. Since then, the government has maintained a tight grip on these institutions, even as their role in the housing market continues to evolve.

The Argument for Separation

The most compelling argument for separating Freddie Mac from government oversight is the principle of free-market capitalism. As a Christian conservative with a belief in individual responsibility and a limited government, I hold that the government’s involvement in the housing market distorts the natural forces of supply and demand. By propping up entities like Freddie Mac, the government perpetuates a system where taxpayers bear the risk of bad loans and financial mismanagement, while investors reap the rewards.

Moreover, the moral hazard inherent in this system is concerning. If Freddie Mac were separated from the government, it would face the full consequences of its financial decisions, just like any other private institution. The separation could encourage more responsible lending practices and discourage risky behavior that leads to taxpayer-funded bailouts. The government’s role should be to protect the rights of individuals, not to act as a backstop for private corporations.

Potential Risks and Challenges

While there are clear benefits to removing government oversight from Freddie Mac, there are also substantial risks. The primary concern is that without government backing, Freddie Mac’s ability to operate on a large scale could be compromised. The U.S. housing market depends on the stability and liquidity provided by entities like Freddie Mac, and a sudden separation could lead to a destabilization of this market. The effects of such instability could be felt most acutely by homeowners and prospective homebuyers, especially in areas where housing prices are already high.

Additionally, the separation could lead to greater inequality in housing access. As Freddie Mac works to provide financing to low- and middle-income families, a removal of government involvement could lead to higher costs for borrowers and limited options for those who need affordable housing. The free-market dynamics that many conservatives champion might result in a situation where only the wealthy can afford home ownership, leaving the middle class to fend for themselves.

A Christian Conservative Perspective

From a Christian conservative perspective, the issue of government involvement in housing is not simply an economic one—it is also a moral issue. I believe that one of the roles of government is to ensure that its citizens have access to basic necessities, such as affordable housing. As a member of the Church of Jesus Christ of Latter-day Saints (LDS), I am reminded of the importance of compassion and helping others, especially the poor and vulnerable. However, this does not mean that the government should become a permanent crutch for the housing market, distorting it in ways that benefit the powerful few at the expense of the many.

In my view, a separation of Freddie Mac from the government could encourage the private sector to step in and create more innovative solutions for affordable housing. Rather than relying on government intervention, we could rely on principles of stewardship and community involvement to ensure that the needs of the most vulnerable are met.

Conclusion

The separation of Freddie Mac from the U.S. government is a complex issue that requires a careful balancing of principles. On one hand, a return to a more free-market system could reduce the moral hazards associated with government intervention and restore personal responsibility. On the other hand, the risks to housing stability and accessibility cannot be ignored. As someone who has seen the consequences of both government intervention and market-driven solutions, I believe that any separation should be gradual, with measures in place to protect the most vulnerable in society.

Ultimately, the question is not just about economic efficiency but also about the role of government in promoting fairness and equality. If the separation of Freddie Mac from the government is to be a good thing, it must be done with a careful understanding of the risks involved and with a commitment to ensuring that the American people—especially those most in need—are not left behind.

Citations

  1. "Freddie Mac and Fannie Mae: Understanding the Issues." U.S. Senate Banking, Housing, and Urban Affairs Committee, 2019.
  2. "The Financial Crisis: Causes and Consequences." Congressional Research Service, 2012.
  3. "Government-Sponsored Enterprises and the Housing Market." Federal Housing Finance Agency, 2020.
  4. "The Role of Government in Housing Finance: Economic, Social, and Political Perspectives." Journal of Housing Economics, 2021.
  5. "Christian Economic Principles: A Guide to Free-Market Solutions." The Acton Institute, 2018.

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