Fannie, Freddie and the Concept of Fairness

“Fairness” is a concept that most of us are taught almost from birth. It is the foundation for every game played. It is the foundation of our government. Fairness is applied through the making of rules. For example, traveling in the game of basketball is not allowed, because theoretically it provides an unfair advantage to the team on offense. It would, in fact, be fair or at least equal if both teams could travel. Perhaps fairness is in the eye of the beholder. The beholder, of course, is the one making the rules.

An example from government is the Dodd-Frank Act, which certainly is not fair. DFA was designed to address issues that caused the financial crisis, which was driven by a real estate valuation bubble most prevalent on the coasts. The majority of banks were innocent victims, rather than part of the root cause. Nevertheless all banks were treated as if they had inflated the bubble. Fair? I think not.

During the past few weeks, there has been much talk in Washington DC, and a few bills introduced, addressing what to do with Fannie Mae and Freddie Mac, the two giant housing government-sponsored entities placed in receivership by the U.S. Treasurer in 2008. Even President Obama has begun to discuss Fannie and Freddie. He thinks they should be phased out, but seems less certain about how to replace the important role they have played historically in the housing finance system. Oddly enough, Senate Majority Leader Harry Reid, who also is a Democrat, disagrees with the president regarding the dismantling of Fannie and Freddie.

Also, recently there have been lawsuits filed that ask Fannie and Freddie to restitute some funds to those who owned stock when the Treasurer placed them in receivership. I would hope that all would agree that the taxpayers who bailed out Fannie and Freddie should collect their money first, which should occur within the next several months.

After the initial restitution, doesn’t it seem fair that those people and entities who took huge losses in 2008 when Fannie and Freddie were placed in receivership be paid back all or some of the money they lost? Many of these entities were banks, which often were encouraged or at least blessed by federal bank examiners to purchase Fannie and Freddie stock as a safe investment. I know of several banks in Indiana that were victims of the receivership. Fairness dictates that they should be reimbursed by the now-profitable Fannie and Freddie.

Fairness does not always dictate the actions taken by Congress, and banks still suffer from public image problems on Capitol Hill. I am not aware of any legislation that would deal with this injustice. Consequently we are left hoping that the court system will provide this fairness.

Let’s hope that the banking industry unites around this concept. It is time to demand fairness.

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