Is government mortgage control next?

By DAVID MOON, Moon Capital Management, LLC
March 28, 2010

Whether you are in favor of the recently signed medical insurance bill or not is mostly irrelevant. In the United States, while medical insurance is not an inalienable right, it is certainly now a legal one. It also has the strange dual distinction of simultaneously being both a legal right and requirement.

I already have medical insurance, as do my employees. Regardless of the outcome of all of the legal challenges, I assume that won’t change. I do assume, however, that I’m going to pay more – either in premiums, taxes or both.

In Tennessee, TennCare was sold as a way to cover more people with the same amount of federal and state dollars. One of the things we’ve learned is that Jesus might have been able to feed 5,000 men with enough food normally designed for two or three, but that doesn’t work for medical insurance.

I think most people think this insurance plan is going to need some more fishes and loaves. Will my taxes and insurance premiums increase more or less than they would have in the absence of this new plan?

Who knows. That’s a lot like trying to count “saved jobs.”

Rather than focus on Glenn Beck’s crazy antics or Dennis Kucinich’s flip flops, it is more useful to think about the federal government extending its reach into an area even larger than medical insurance: housing.

Since George Bush’s Treasury Department nationalized Fannie Mae and the Federal Home Loan Mortgage Corporation in 2008, the federal government has provided more than $1.5 trillion worth of direct and indirect support to these two entities.

The problem now is trying to figure out what to do with these massive “investments.”

Will these companies eventually be privatized, and forced to live as completely independent entities, without either an explicit or implicit guarantee of their debt?

Or will the federal government absorb Fannie and Freddie into its balance sheet and become the new funder of all home loans?

I know people who voluntarily choose not to have medical insurance. I don’t know anyone who chooses to be homeless. If society – via its instrument, the government – has an interest in providing everyone a Blue Cross card or its equivalent, then surely providing a mortgage meets that same test of moral obligation.

And if medical insurance is the same thing as health care, then a home mortgage is pretty darn close to the same thing as housing.

The federal government now owns or guarantees 69 percent of all the mortgages in the US. Most of the capital used to original fund these loans came from investors who purchased FNMA and FHLMC bonds.

The largest original purchaser of Freddie and Fannie bonds has been the Chinese government.

Considered in that light, maybe the US federal government should control the mortgage industry. After all, if any government is going to control it, I suppose it should be ours.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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