How the Ridiculousness of Fanny Mae and Freddie Mac Could Only Exist with a Private Central Bank

ByPrimary Researcher

Executive Summary

  • Fanny Mae and Freddie Mac were created to purchase home loans to “increase liquidity.” These institutions would be completely unnecessary under a government-controlled banking system.

Introduction

The Federal National Mortgage Association or “Fanny Mae” and Federal Home Loan Mortgage Corporation or “Freddie Mac” are two now nationalized loan buying entities that purchase loans from loan originating banks. What led to the creation of these institutions was to increase the ability of Americans to buy homes. These entities purchase mortgages. However, both of these institutions are only necessary because the US government has handed over its ability to create money. With a public central bank and no private banks, there would be no need to buy mortgages. Instead, Americans would simply apply for a loan with the US government bank. And they would have to meet whatever are the prevailing lending standards. The US government can have more sustainable lending standards as it does not have the profit motive of private banks. The subprime mortgage crisis occurred because many banks, like Countrywide and Washington Mutual, did not care about applying any lending standards but could flip mortgages (which ended up defaulting) to Wall Street. In the following video, Alan Grayson asks the head of Fanny Mae why they purchased $250 B in derivatives. One should stop and consider how ridiculous Fanny Mae has to buy derivatives to manage risk (the ostensible reason for which they were purchased). Fanny Mae should be part of the US Government and should make loans, loaning out the US Government’s own debt-free money. Not buying up loans from private banks. The private central bank model means that ridiculous entities like Fanny Mae can be justified to be created that buy mortgages from private banks. This is a quasi-US Government entity that is buying mortgages that only exist because private banks have been inappropriately given the ability to create money. So Fanny Mae and Freddie Mac buy what is the government’s money-creation function in the first place.

The Problem With Being a “Quasi Public/Private” Entity

After the 2008 financial crisis, Fanny Mae and Freddie Mac needed to be bailed out by US taxpayers, which is another unnecessary cost. Being a public/private entity means less government control over the entity, which leads to greed and then to financial panics, which are then paid for by the government.

The list of ludicrous and unnecessary endeavors and institutions is unending once one gives up central banking to private banking interests.