Barney Frank should quit his day job — VOICES for REASON

For years, Barney Frank has been the most prominent cheerleader of Fannie Mae and Freddie Mac–the colossal failures that have cost taxpayers $110 billion to date. Frank has long denied any problems with the government sponsored entities designed to “promote home ownership” by making or guaranteeing loans the free-market wouldn’t.

“These two entities—Fannie Mae and Freddie Mac,” he famously said, “are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Frank also explicitly endorsed the reckless lending that proved Fannie and Freddie’s downfall: “I want to roll the dice a little bit more in this situation towards subsidized housing. . . .”

Last week, Barney Frank changed his mind: “The remedy here is…as I believe this committee will be recommending, abolishing Fannie Mae and Freddie Mac…”

But don’t celebrate just yet. Frank didn’t call for a meaningful abolition–he called for “abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance” (emphasis mine).In other words, there is nothing inherently wrong with government housing entities, like Fannie Mae and Freddie Mac, which subsidize mortgages and manipulate the market at taxpayer expense. It’s just that we didn’t do it the right way last time. But now we’re going to “come up with a whole new system of housing finance,” so Americans should rest easy.

The easy objection to all this is that Barney Frank, the veritable Ambassador for Fannie and Freddie, wants to lead the mission to create “a whole new system of housing finance.” And to be sure, if this were a valid mission, Frank would be one of the least qualified people on the planet to lead it. But it’s not a valid mission. No one has the right or qualification to dictate how homes are financed besides lenders and borrowers with their own money at stake. As I wrote in 2008,

Decisions about how best to finance mortgages should not be made by politicians or by editorial page columnists–they should be made by individuals in a truly free mortgage market, where lenders are free to lend as they choose and reap the full consequences of their decisions. The problem with the current system is not that borrowers and lenders have been unaware of more sensible financing options, but that implicit bailout guarantees have made reckless, short-sighted lending options more appealing. Abolishing the housing welfare-regulatory apparatus is the only “fundamental reform” that will do.

flickr: seier+seier+seier