Mortgage Mess Part 15--Breaking Up is Hard to Do

The third solution to keep this Mortgage Mess from ever happening again is by addressing the policy of "Too big to fail". In the last 15 years we have allowed and even encouraged companies to grow too big for the public's good.

Fannie Mae and Freddie Mac are the poster children of this policy. Together they own or guarantee $5.3 TRILLION in mortgages or roughly 50% of the market place. These companies are way too big and were allowed to do so by our politicians (please see my previous posts on this issue).

Personally, I think Fannie and Freddie need to be split up into at least 6 different companies and maybe 10 once they are financially healthy. Second, take away all explicit and implicit federal government guarantees from these companies and make them totally public corporations. This way we as taxpayers are not at risk again. Third, allow them to borrow from the Fed as a bank can at cheap rates of interest to keep the costs of mortgages affordable. Fourth, have FHA be the lender for "Affordable Mortgages".

Thankfully it appears that Treasury Secretary Hank Paulson understands this as his plan in 2010 begins to shrink the size of Fannie and Freddie's loan portfolios by 10% a year. But will he be around long enough to implement his plan?

I am afraid if Obama is elected he will be dismissed and a Democratic Crony will take his place and not address this issue and in fact allow Fannie and Freddie to grow even larger with another push for affordable home ownership for people who should be renting.

Will we ever learn?