Fannie Mae and Freddie Mac preserve their privileged status through a multi‐million‐dollar lobbying effort that includes massive “soft money” campaign contributions and the payment of exorbitant salaries to politically connected executives and lobbyists. The GSEs also protect their government‐sponsored empire through millions of dollars of charitable donations to Washington advocacy groups.
Because of their quasi‐governmental status, there is a market perception that Fannie Mae and Freddie Mac mortgage‐backed securities and debt carry an implicit federal guarantee against default. Hence, the GSEs expose the federal taxpayer to an ever‐increasing potential contingent liability that could ultimately cost tens of billions of dollars to rectify.
To remedy the situation, those GSEs should be stripped of the privileges of government sponsorship and be converted to fully private enterprises. The only remaining questions for analysis are when and how privatization should occur.