OPEN LETTER TO BARACK OBAMA ON HIS AUTOBIOGRAPHY “A PROMISED LAND” Part 71 “The financial system was in a meltdown and taking the American economy with it… . I had always made the need for more PROGRESSIVE economic policies a central part of my argument for change” DAN MITCHELL HAS RIGHTLY NOTED: “The one silver lining to the dark cloud in financial markets is that it is no longer tenable to credibly argue in favor of government‐​sponsored enterprises such as Fannie and Freddie”

January 31, 2021

Office of Barack and Michelle Obama
P.O. Box 91000
Washington, DC 20066

Dear President Obama,

I wrote you over 700 letters while you were President and I mailed them to the White House and also published them on my blog http://www.thedailyhatch.org .I received several letters back from your staff and I wanted to thank you for those letters. 

I have been reading your autobiography A PROMISED LAND and I have been enjoying it. 

Let me make a few comments on it, and here is the first quote of yours I want to comment on:

The financial system was in a meltdown and taking the American economy with it... I had always made the need for more progressive economic policies a central part of my argument for change.

You think that progressive policies of more government is the solution but look at this assertion by Dan Mitchell:

The one silver lining to the dark cloud in financial markets is that it is no longer tenable to credibly argue in favor of government‐​sponsored enterprises such as Fannie and Freddie.

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https://www.cato.org/publications/commentary/what-do-fannie-freddie?queryID=c5212da1aeb93389626269eec62f9c7b#related-content

What to Do with Fannie and Freddie? 

By Daniel J. MitchellThis article appeared in the Los Angeles Timeson October 16, 2008.

  • Related Content

The one silver lining to the dark cloud in financial markets is that it is no longer tenable to credibly argue in favor of government‐​sponsored enterprises such as Fannie and Freddie. These corrupt entities played a significant role in causing the real‐​estate bubble, and politicians — if they had any sense — should liquidate Fannie and Freddie now that they are officially insolvent.

Let’s quickly review why Fannie and Freddie should have been shut down and also show how they contributed to the financial mess. 

  • Fannie and Freddie were explicitly designed to divert capital into residential real estate. The implicit (now explicit) government guarantee meant that interest rates for home mortgages were subsidized compared to rates for other forms of borrowing. This does not necessarily cause systemic risk, but it does harm long‐​run economic performance by soaking up funds that otherwise would have been used for business investment.
  • Fannie and Freddie were perverse examples of crony capitalism. An important feature of a genuine free market is that everybody plays by the same rules. But the interest‐​rate subsidy available to Fannie and Freddie gave them a huge advantage over other companies. Ironically, much of that subsidy wound up lining the pockets of the political elite that somehow — notwithstanding a total lack of real‐​world business acumen — wound up getting top slots in the Fannie and Freddie hierarchy. 
  • Fannie and Freddie expanded their activities beginning in the 1990s, shifting from being akin to a subsidized investment bank that issued mortgage securities to being akin to a savings and loan institution on steroids. In effect, Freddie and Fannie became their own biggest customers, issuing debt to amass huge portfolios of securitized mortgages. This destabilized the entire financial system by contributing to the housing bubble. A few policymakers tried to rein in the worst excesses, but they were blocked by politicians such as Rep. Barney Frank and Sen. Chris Dodd, all of whom were major recipients of campaign contributions from Fannie and Freddie.
  • In 2000, Bill Clinton’s Department of Housing and Urban Development made a bad situation even worse by imposing so‐​called affordable‐​housing quotas on Fannie and Freddie. The government‐​sponsored enterprises responded by becoming huge purchasers of securities containing subprime mortgages. This further contributed to systemic instability and the housing bubble. The Bush administration added fuel to the fire in 2004 by increasing the affordable‐​housing quotas, and Fannie and Freddie responded by lowering the standards for mortgages they would purchase for securitization.

There is a lot more that can be written about Fannie’s and Freddie’s mistakes and their corrupt symbiotic relationship with the political class, but there’s only so much that can be said given space limitations.

The key question is what should be done now that Fannie and Freddie are on life support. If there is any common sense in Washington, they will be shut down. The simplest approach, at least once the financial crisis has passed, is to cease and desist any new securitization (leave that function to real private‐​sector companies) and to pay off existing debt as the securities and mortgages in their portfolios mature.

Media Name: mitchell.jpg

DANIEL J. MITCHELL

Daniel J. Mitchell a senior fellow at the Cato Institutewhere he is an expert on tax reform and supply‐​side tax policy.

Sincerely,

Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733 everettehatcher@gmail.com

Former U.S. President Ronald Reagan (L) presents then, president-elect Bill Clinton (R) with a jar of jelly beans during Clinton's visit to Reagan's office in Los Angeles in this November 27, 1992

Ronald Reagan Bill Clinton with a jar of jelly beans in November of 1992. 

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