If you’re a frequent reader of these pages, then you know that I am an avid subscriber to the UK Economist. That publication had been trumpeting this move for weeks, with barely a squeak out of yours truly. “Never happen,” I said, “this is America for crying out loud.”
Despite decades of free-market rhetoric from Republican and Democratic lawmakers, Washington has a long history of providing financial help to the private sector when the economic or political risk of a corporate collapse appeared too high.
The effort to save Fannie Mae and Freddie Mac is only the latest in a series of financial maneuvers by the government that stretch back to the rescue of the military contractor Lockheed Aircraft and the Penn Central Railroad under President Richard Nixon, the shoring up of Chrysler in the waning days of the Carter administration and the salvage of the U.S. savings and loan system in the late 1980s.
More recently, after airplanes were grounded because of the terrorist attacks of Sept. 11, 2001, Congress approved $15 billion in subsidies and loan guarantees to the faltering airlines.
Now, with the U.S. government preparing to save Fannie and Freddie only six months after the Federal Reserve Board orchestrated the rescue of Bear Stearns, it appears that the mortgage crisis has forced the government to once again shove ideology aside and get into the bailout business.
“If anybody thought we had a pure free-market financial system, they should think again,” said Robert Bruner, dean of the Darden School of Business at the University of Virginia.
Seems Professor Bruner was right, though I have to admit I am absolutely shocked that the federal government would bail out the mortgage giants at Freddie Mac and Fannie Mae.
So much for the virtues of the free market.