The government’s recent sale of stock in insurance giant American International Group is a welcome milestone in the unwinding of the massive federal investments made in private companies during the financial crisis. The bailout of AIG turned into a gain for the government, TARP investments in the biggest banks have been repaid at a profit, and the Treasury Department is selling off stakes in smaller institutions at an admirable pace. Taxpayers are being compensated for stabilizing the economy at a critical time.
Four years after the worst phase of the financial crisis, however, it is time to end the most costly bailout of all: the government takeover of Fannie Mae and Freddie Mac. Keeping the two housing-finance firms alive has been expensive. Treasury has invested $187 billion in the companies and has received $46 billionin dividends, for a net cost of $141 billion so far.
This support has allowed the two companies to continue to service the $4.5 trillion in guarantees against mortgage default and $900 billion in debt that they had racked up before the crisis, and to underwrite trillions of dollars in new mortgage credit. As a result, Americans have been able to get mortgages to buy homes and (especially) to refinance at lower interest rates.