Schiff slams Trump’s plan to make Fannie and Freddie public, explicit guarantees to fuel reckless risk and taxpayer losses

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Of all the policy mistakes Trump has made as President, taking Fannie and Freddie public with explicit government guarantees would be the worst so far.

Prior to their bankruptcy, the guarantees were only implicit. An explicit guarantee would allow the GSEs to be even more reckless than they were before, allowing the president’s friends to reap a windfall at the taxpayers’ expense. Fannie and Freddie would be free to make as much money as possible by engaging in the most risky behavior possible, leaving the taxpayers left holding the bag when those risks inevitably result in another bankruptcy.

Private profits and public losses are not capitalism. It’s the worst form of cronyism. This dynamic helped create the 2008 financial crisis. What the president is apparently considering creates an even greater moral hazard that will lead to an even greater distortion of the housing and mortgage markets, and even greater future losses for taxpayers.