McCain’s Freddie/Fannie Plan

Two years ago, before he announced his candidacy for president, Sen. John McCain saw the writing on the wall.

“If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose," McCain warned.

McCain pleaded with Congress to reform the lending giants by cutting off their lobbyists and imposing stiff regulations that would break up the status quo. McCain warned that if the lenders became too big, a bailout would become the government’s only choice. Unfortunately, McCain’s foresight went unheeded and, Saturday, the US Treasury announced that it will essentially “purchase" the two largest after-market home lenders in the world.

On July 13, US Sen. Chris Dodd, the Democratic Chairman of the Senate Banking Committee told CNN that the institutions were “sound,” and that a bailout wouldn’t be necessary. With this kind of big-government, head-in-the-sand thinking, it’s easy to see why the US housing market plunged into a subprime mortgage crisis.

Two weeks after Dodd uttered these unbelievable remarks, the jig was officially up. McCain wrote a sad op-ed, which appeared in the St. Petersburg Times (Fla.) and placed the blame for the crisis on “crony capitalism that reflects the power of the Washington establishment.”

Thanks to Dodd and his co-horts, the delays in dealing with the problems have resulted in a multitude of economic problems stemming from a steep housing market collapse and a complete free-fall in consumer credit.

Manipulated data, bloated executive salaries and a steady hemorrhage of money pouring into pension funds, foreign central banks, shareholders, lobbyists and other financial institutions all contributed to the downfall of these distended companies. Ironically, the current bailout finally puts many of the regulations into practice that McCain had proposed when there was still time to resolve the problem.

McCain has a plan to deal with the disaster that has become Freddie Mac and Fannie Mae now that they’re finally under government control: limit their ability to borrow, shrink them until they are no longer an economic threat, privatize them once and for all, and sever all government ties.

To his credit, Barack Obama recently has expressed his displeasure with how these lending organizations are currently structured, but his realization is a tad too late. Perhaps this is because former Fannie Mae CEO James Johnson was among Obama’s closest advisors. Johnson’s role was to vet potential Democratic running-mates. The intense scrutiny from the lending probe led Johnson to resign from the campaign in June, according to this unflattering ABC report.

The good news is that whoever is elected in November will undoubtedly restructure Fannie Mae and Freddie Mac. The bad news is that if Obama wins, these bloated lenders will be incorporated into an already bloated federal government – making an already big government even bigger.