Was the Housing Bailout Good Business for the Taxpayer?

Diego ZuluagaEarlier this month, the Department of the Treasury released its long-awaited housing financereform plan, which focused mainly on the two government-sponsored enterprises, Fannie Mae and Freddie Mac. The feds took both GSEs over in 2008, when rising defaults jeopardized their viability. The blueprint ’s release date was propitious, eleven years almost to the date after the controversial bailout.But was the controversy justified? As the GSEs ’ long-overdue exit from government “conservatorship” becomes a more realistic possibility, somemarket participants with a vested interest aretelling us that Uncle Sam actually made money by rescuing the mortgage giants – to the tune of $110 billion. Since putting taxpayer resources into failing firms is such good business, perhaps we should stop worrying and learn to love bailouts.If you think that ’s a good idea, I have a“liar loan” to sell you. No, the bailouts were not a sound investment. They weren ’t really an investment at all in the usual sense, but rather a political imposition on taxpayers in the heat of the meltdown. And they definitely weren’t sound. Whoevermakes that claim is committing two economic fallacies at once: ignoring alternative uses of scarce capital and neglecting the high risk that rescuing Fannie and Freddie involved at the time.Let ’s start with the opportunity cost of bailout funds. The Treasury has so far spent around $190 billion to keep Fannie and Freddie in the black. It ha...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs