The mortgage giants have been delisted and should now be liquidated. Ignoring this problem, as the administration has done so far, simply keeps the bailout spigot open.

Thomas F. Cooley at Forbes.com

A nasty exchange broke out last week in the House-Senate conference committee that is finalizing financial regulatory reforms. Some Republican members of the group began castigating the architects of financial reform for not having dealt with the big problem of Fannie Mae and Freddie Mac, which continue to require taxpayer bailouts to the tune of hundreds of billions of dollars. Barney Frank and Christopher Dodd rightfully brought the focus back to the matters at hand, the Restoring American Financial Stability Act. The Republicans may have engaged in disruptive behavior, but they have an important point. Financial stability is not likely to be restored until we figure out what to do about mortgage finance.

It is quite amazing that the financial reform legislation didn’t take on the problem of Fannie Mae and Freddie Mac, but it may be because it will turn out to be the thorniest and most divisive issue on the reform agenda. Thinking seriously about housing markets and housing finance requires nothing less than rethinking the American Dream. By that I mean the dream that every American household should strive to own their home. Public policies enacted to foster the pursuit of that dream have created huge distortions in our economy that will be very costly to undo. They have also–through the malfeasance of Fannie and Freddie (encouraged by the likes of Barney Frank)–created an enormous liability for U.S. taxpayers.

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