What Should the Government Do
About Fannie May and Freddy Mac?

The American people have been bewildered and disheartened by the continuous burst of bad economic news, about which they have no understanding of how or why they happened. Why should the housing industry collapse, when there are so many looking for and needing homes? Why a credit crunch? Why couldn’t the mortgage crisis be prevented? How come the banks lost billions of dollars?

Why are working people suffering mass layoffs and deflated wages? Why do Wall Street stocks fall as much as 239 points in a single day?. Do the financial experts have any idea when economic life will return to normal?

And then there is that huge problem facing the country: what to do about Fannie May and Freddie Mac? Since 1968, Fannie May has helped more than 55 million families achieve the American Dream of home ownership, But risky investments, phony accounting practices and bad management have caused the two mortgage companies to become heavily debt-ridden. Fannie’s stock had fallen 47 percent while Freddie was down 50 percent.

The U.S. Treasury and the Federal Reserve have worked out a plan to bail out the two financial giants by providing them with a backstop of trillions of dollars of taxpayers’ money to stabilize them. The argument in favor of the bailout is that Fannie and Freddie are too large to let them fail. They currently underwrite nearly 80 percent of all new mortgages in the United States. If they were allowed to collapse, it would have an explosive effect, not only in the U.S., but around the world.

Still, there is considerable opposition to the bailout, which would give the two companies, run for profit by private investors, such extraordinary financial protection and immense influence. The government hopes to mollify the critics by including funds for homeowners facing foreclosures.

But if Fannie and Freddie are so badly run and too large to fail, there is another alternative to consider: why not nationalize them? Why give their profit-seeking investors the ultimate in government protection?

The public is becoming jittery about the unpublicized deals that are being discussed in Wall Street, Congress and the Bush administration. Even of greater concern is the fear that those in charge of getting us out of the economic crisis—perhaps the worst since the Great Depression—are not really sure of their remedies. If they fail, what then? Will we be headed for a financial meltdown?

Both the AFL-CIO and the Change to Win have said very little about the series of economic crises and their impact on working families. Most unions have their financial assets invested in a variety of securities. Will they remain tight-lipped about their losses?

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