Presidential Politics: Views on Fannie, Freddie Bailout

Fannie Mae and Freddie Mac have given the U.S. presidential candidates another economic issue to argue.

In the ABC game show Wipeout!, contestants fight through a series of challenges that leave them physically exhausted and, sometimes, humiliated. Sounds like the presidential race, right? Amid a struggling economy and broken real estate industry, the presidential candidates now have to navigate through a restructuring of the country's two largest mortgage companies.

Following months of speculation about the financial stability of Fannie Mae and Freddie Mac, the feds have finally stepped in and taken over both entities. Fannie and Freddie cumulatively hold, or back, more than half of all domestic mortgages. The bailout will be costly, to be sure-the Bush administration has already quoted numbers as high as $200 billion.

No sucker-punch

The Fannie and Freddie failures alter the course of the presidential race and, more noticeably, the next administration's term. Even though there was no sucker-punch here-Fannie and Freddie's problems have been brewing for a long time-either Senator McCain or Obama will have to juggle priorities to fund a Fannie and Freddie reorganization. A McCain advisor has gone on the record to express his dismay over potentially inheriting such a burdensome legacy. Obama's people aren't so discouraged; they say his budget can absorb the expense.   

All talk, no detail

Both candidates have opened up the dialogue about their respective plans for Fannie and Freddie. McCain and his running mate, Sarah Palin, even expressed their views in a column that appeared in the Wall Street Journal.

The talk is there, but the details aren't. McCain and Obama are supportive of the takeover, and both have argued for a fundamental restructuring of these entities. Governor Palin has stated that Fannie and Freddie had "gotten too big and too expensive to the taxpayers." The technically inaccurate comment (Fannie and Freddie haven't cost the taxpayers anything yet), indicated her support of paring down the entities, but also prompted concern from many about her misunderstanding of the situation.

In any case, everyone on the campaign trail agrees that Fannie and Freddie are likely to be too big and too expensive to taxpayers at some point in the future. McCain is ready to chop up the two mortgage companies and sell off the assets in pieces. He and Palin have said, "We will make sure that [Fannie and Freddie] are permanently restructured and downsized." This signals that the Republican ticket would go for full privatization, eliminating all implied and stated government support. Under this proposal, the FHA would likely become the primary vehicle for government mortgage assistance.

Obama argues for privatizing non-essential segments of Fannie and Freddie's operations, while retaining some government involvement in certain activities. He believes the right plan will more clearly define the separation between public housing policies and private housing investment.

The candidate who emerges victorious has his work cut out for him. All of America will be watching to see if this episode ends with a wipeout.