A speech Obama should give on Fannie, Freddie

William McGurn:

The President: Good evening. As we speak, our nation faces a multitude of challenges. At home, our top priority is to recover and rebuild from a recession. Abroad, our brave men and women in uniform are taking the fight to al Qaeda wherever it exists. Tonight, I want to speak with you about a battle we're waging against an enemy that is assaulting the very homes our citizens live in.

In September 2008, Fannie Mae and Freddie Mac imploded when their losses became unsustainable. In part because so many of our financial institutions relied on mortgage-backed securities based on bad loans, a housing crisis exploded into a financial crisis. And Americans continue to suffer from the effects. Unlike a hurricane or oil spill, where the damage is obvious to the eye, the damage wrought by Fannie and Freddie is much more insidious. As president, I have many smart people in my administration. But you do not need a Nobel Prize to know the problem here.

Fannie and Freddie bought mortgages offered by banks, which it then resold as mortgaged-backed securities. Banks liked this, because it meant more money to lend. In the name of enabling ever more Americans to own their homes, and encouraged by Congress, Fannie and Freddie expanded into ever more risky mortgages. In the end, these two companies helped send billions in loans to Americans who lacked the means to pay them back—while spreading risk throughout our financial system.

Think of these bad loans as a nasty leak polluting our financial system. While most other large financial firms either have failed or are now recovering, the damage caused by Fannie and Freddie continues largely unabated. The Congressional Budget Office says that plugging these bad loans has already cost taxpayers $145.9 billion, making them the single largest bailout of all.

Make no mistake: We will fight Fannie and Freddie with everything we have got for as long as it takes. We will make these two government-created companies pay for the damage they have caused. In fact, we are going to make Fannie and Freddie pay with their lives. Tonight I'd like to lay out our battle plan going forward:

...

Read it all.

This is the financial regulatory reform we should have begun with. It is also the one this administration avoided because it is still not committed to reforming Freddie and Fannie. They are still too tied to the Democrats' continuing culture of corruption. Barney Franks and Chris Dodd continue to defend them the way they did when the Bush administration tried to rein them in.