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Defanging Fannie and Freddie

These private-public hybrids must not be allowed to lobby Congress for unfair perks.

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The US government takeover of Fannie Mae and Freddie Mac has lifted a fog of fear over financial markets and brought a respite of stability. Coming just before an election, it should also spark debate over the future of these two giants – as well as all federal aid to middle-class homeownership.

The debate must start with one basic issue: Why does Congress lose sight of its financial responsibilities after launching an effort to provide a "social good"?

Just as lawmakers still neglect reform of Medicare and Social Security to prevent those debt-ridden programs from bankrupting the nation, they were particularly guilty in allowing Fannie and Freddie, as government-backed enterprises, to recklessly grow too big and take on too much risk in the secondary mortgage market. The two firms helped create a housing bubble by supporting loans to people with weak credit and then became dangerously impaired during the bubble's burst.

Even worse, political corruption set in. Congress let Fannie and Freddie spend millions of dollars on lobbyists to maintain advantages over competitors and to be only loosely regulated. These secretive and powerful institutions pressured the housing industry to lobby on their behalf and provide campaign money to legislators.

One of the conditions put in place in their federal takeover is this welcome move: Suspension of the two firms' political activities.

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