Fannie and Freddie Must Die

Focus: MARKETS

Jim Jubak Image Jim Jubak Founder and Editor, JubakPicks.com

The taxpayer wards have gotten billions in bailouts in the name of preventing a mortgage meltdown and housing collapse. And now Congress is looking for a solution.

And now, fresh off passing the 2,300-page Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress promises to address the "problem" of Fannie Mae and Freddie Mac.

Be afraid. Be very afraid.

Oh, not because Fannie Mae and Freddie Mac don't need to be reformed. They sure do.

And not because Congress can be counted on to compromise its way into a hash that combines the worst of private-market gestures with the worst of bureaucratic rule splitting.

No, the real danger is that a mistake in fixing Fannie and Freddie could take down the Federal Reserve. Or at least take down the Fed to the degree that any central bank, with a central bank's ability to create money, could be taken down.

All hyperbole aside, a mistake in fixing Fannie Mae (OTCBB: FNMA) and Freddie Mac (OTCBB: FMCC) could throw the US financial system into crisis again by destroying the Fed's balance sheet.

The two entities—I don't know quite what else to call them now that the one-time government agencies turned publicly traded companies have turned into wards of the taxpayers—played a central role in the housing bubble that led to the global financial crisis.