Why don't Republicans pledge to abolish Fannie and Freddie?

Washington Post:

After President Obama signs into law an overhaul of financial regulation at a ceremony set for Wednesday, his administration will turn to reforming an area at the root of the financial crisis: the U.S. housing market.

Responding to the collapse in home prices and the huge number of foreclosures, the Obama administration is pursuing an overhaul of government policy that could diverge from the emphasis on homeownership embraced by former administrations.

"In previous eras, we haven't seen people question whether homeownership was the right decision. It was just assumed that's where you want to go," said Raphael Bostic, a senior official in the Department of Housing and Urban Development. "You're not going to hear us say that."

My take:

The bureaucrats still don't get it.

The housing debacle and resulting recession could not have happened in the absence of Fannie Mae and Freddie Mac. Fannie and Freddie were central to a debauched mortgage process that appeared to have done away with risk, a central concept in economics and finance.

Risk is present in every transaction. The proper pricing of risk, through interest rates, is the challenge.

In the mortgage bazaar that grew out of the 1977 Community Reinvestment Act, lenders reduced their risk to near-zero by promptly unloading new mortgages to Fannie and Freddie. The intrinsic risk was high in many of those mortgages, but the writers of the mortgages bore almost none of it.

Fannie and Freddie also bore little risk because they sold the mortgages to investment banks, which bundled them and sold them as securities throughout the world.

The only bearers of large risk were the ultimate investors, who weren't aware of their jeopardy until the bubble burst and the value of morgage-based securities plunged.

The history of the debacle, in effect, authors the solution. Abolish Fannie and Freddie. Problem solved.

That won't happen under Democrat control because Fannie and Freddie also serve as hiring halls for out-of-work Democrats and a rich source of campaign contributions. It should, however, be a talking point for Republicans as they try to capture control of the House and Senate in November.

Many taxpayers, no doubt, would see the sale or closure of Fannie and Freddie as tantamount to escaping the aroma of a skunk.