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Take away the home-owning incentives

Economics editor Chris Farrell

TEXT OF INTERVIEW

Steve Chiotakis: So Freddie Mac says it's going to need another $10.5 billion from Uncle Sam. This after the mortgage finance company posted another huge loss in the first three months of the year. And while Congress continues to debate financial reform, some of the missteps in the tanking of the housing market seem to have been forgotten. Marketplace Economics Correspondent Chris Farrell is with us. Good morning, Chris.

Chris Farrell: Good morning, Steve.

Chiotakis: So what got us into this problem in the first place?

Farrell: Oh, there are so many things that got us into this problem. But here's one of the underlying issues: Washington created too many incentives for Americans to pour their savings into the housing market. I mean we have Fannie Mae, we have Freddie Mac, we have tax incentives. People have the idea we have all these incentives toward owning a home compared to stocks and bonds, let's pour our money into concrete. And that's what we did.

Chiotakis: So what needs to change, Chris?

Farrell: Oh, I think there's a number of things that need to change. One, I mean if I were czar, I would get rid of all the tax breaks that favor housing. I also think that we really need to deal with the mortgage giants Fannie Mae and Freddie Mac.

Chiotakis: So what about them? I mean we bailed them out, they remain these, you know, wards of the state, if you will . . .

Farrell: Oh I love that, I love that expression: "wards of the state," that's absolutely right.

Chiotakis: Why is that?

Farrell: Well, they're essentially bankrupt, and they're being propped up by the government. And what Fannie Mae and Freddie Mac do is they bundle loans. And by bundling loans, they bring some money into the market, and it makes it much easier for middle-class families to get mortgage loans. But they got themselves into a lot of financial trouble, they're still in financial trouble, and here's the thing -- we don't need them. I think we should just break them up, sell them off to the private sector, and just let the private market work. When it comes to something like homeownership, stocks or bonds, you know the private sector does a pretty good job. Let's get the government out of favoring one investment, housing, over other investments, which might lead to, oh, investing in stocks, we might actually create some high-tech companies. We live in a modern economy, it's time to remove the government support of housing.

Chiotakis: And if you get rid of all these incentives, Chris, I mean what's going to be a better way, do you think, to stimulate the housing market?

Farrell: Let the market work. Forget stimulating the housing market; if prices go down, let them go down. Because you know what's going to happen, Steve?

Chiotakis: What?

Farrell: Buyers are going to emerge and they're going to make offers. So let the market work. This is one of those times when that's the right thing to do.

Chiotakis: Marketplace economics correspondent Chris Farrell. Chris, thanks.

Farrell: Thank you.

About the author

Chris Farrell is the economics editor of Marketplace Money.
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If you listen carefully to what C. Farrel says, and do exactly the opposites you will make lot's O' $$$$.

C. Farrell is SO wrong it is sad; especially for those poor suckers who invested in the market as much as he implored them too. Get a real economist, please!

I believe the breakdown was the GSE's like Freddie & Fannie did 40% of the mortgage bundling early on (2004) and the private houses did 60%, as demand grew for MBS fodder. This,coupled with the Fed's open spigot of nearly free money, plus human nature, got us where we are, but to say it's all Freddie & Fannie is nuts.

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