This is not the first time Obama has kicked this can down the road. In March 2009, White House economic adviser Christina Romer said that reform of Fannie and Freddie "should be part of the overall financial regulatory reform." When the reform bill passed in 2010, Fannie and Freddie were not included. In June 2009, the White House published a white paper on financial reform, promising "a wide-ranging initiative to develop recommendations on the future of Fannie Mae and Freddie Mac" by February 2010. This initiative never materialized. Nor did the recommendations. Two years after Obama became president, and two years after the two government-sponsored entities played a crucial role in bringing the economy to its knees, there is still no evidence that any serious work has been done in the Obama White House or among Democratic congressional leaders.
There are several critical concerns about the future of Fannie and Freddie that are affecting markets even now, and the government's failure to address this government-created problem is hurting the market. If the support of Fannie and Freddie is suddenly removed from the secondary mortgage market without any replacement, housing prices will plummet. On the other hand, government involvement in the market got us into this mess in the first place, as political concerns drove risky lending practices to new heights, and could easily do so again.
There are possible solutions out there. Peter Wallison, the American Enterprise Institute expert who predicted Fannie and Freddie's downfall nine years before it occurred, has suggested moving toward the covered-bond system used in Europe, which leaves banks with skin in the game and creates far more secure investments than the mortgage-backed securities that brought our financial markets to their knees. Wallison's is just one idea among many, but it is one more idea than we have seen come out of this White House so far. There will be plenty of opportunities for Obama to engage in rhetorical jousting with House Republicans. He should instead show some leadership on this issue.