One of the signal successes of the Obama administration was student loan reform. The previous system, in which private entities got paid for handing out government guaranteed loans, invited fraud and corruption, both of which accepted the invitation. Other than shunting money that should have gone into student loans to private companies, private involvement added nothing to the process. Among other things, it encouraged the growth of for profit “educational” institutions, which specialized in giving useless educations to desperate people. Since the government made good on defaulted loans, neither the schools or the lenders had any incentive to look carefully at the buyer, or at the prospects that the “education” would be of any use to the victim.
Now, having cleaned up that system, there is a chance that the Obama administration may institute a similar system in the mortgage industry. Incredibly, the folks that brought us the subprime mess are stepping forward to argue for a system similar to the old student loan system for handling government guaranteed mortgages:
As the Obama administration prepares a report on the future of Fannie Mae and Freddie Mac, some of the nation’s largest banks are offering a few suggestions.
Wells Fargo and some other large banks would like private companies, perhaps even themselves, to become the new housing finance giants helping to bundle individual mortgages into securities — that would be stamped with a government guarantee.
What could go wrong, other than a repeat of 2008? Fondly must we hope, fervently must we pray, that the Obama Administration will decline to guarantee a new round of mortgage madness.
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