Unfortunately, We Still Need Fannie And Freddie -- To Support The Housing Market

The Treasury is holding a premature conference today to discuss the future of Fannie Mae and Freddie Mac -- premature, that is, in the sense that these two clunkers will be with us for awhile.

Treasury Secretary Tim Geithner said all the right things when he talked about how reform of housing finance is about more than "an elegant funeral for Fannie and Freddie," and that the nation needs a vigorous debate about the role of government in housing finance. We should have time for that debate, the way things are going.

Housing is a mess. The expiration of the homebuyer tax credit led to another downturn and now there's nothing to camouflage the bad news. New housing construction fell sharply in June, and new permits -- a sign of future activity -- also shrank. RadarLogic CEO Michael Feder took it even further in saying that housing could cause the dreaded double-dip:

As observers of the actual housing market, while we cannot say these numbers are right, we certainly support Chen's concern. However, we think the order of events will be reversed: it is our belief that housing prices will decrease in the autumn, perhaps precipitously, and that may cause a second dip in the U.S. economy.

Susan Wachter, a professor of real estate and finance at the Wharton Business School told Marketplace that, "[i]n the short run we need Fannie and Freddie because they are the way the government is supporting the housing market." But all I can say is: short-run?

The circumstances here are grim. We're looking at a long slog out of a high unemployment rate. There's no additional stimulus coming from the federal government. The Federal Reserve is behind the curve in acknowledging the need for stronger action. At best, Fannie and Freddie should be allowed to evolve from tools of policy to institutions that do not bleed the taxpayer. But right now, we need 'em -- ugly as they are. Medium-run, perhaps?

No, I'm not suggesting the government should use Fannie and Freddie to pump up another housing bubble. But under the circumstances, the burden is on those who would argue that we should remove any support being given to a still-anemic economy.

Related:

• No Double-Dip Recession? Terrific - But We're Not Out Of The Woods Yet
• Criticism of Fed On Quantitative Easing Are Wrong: We Need More
• Mortgage Holders Are Not Getting the Treatment that Banks Did Under TARP

[WilleamHenry]

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