The Pricey Bailout

The flipside to the negative cost of the very controversial and much-loathed TARP bank bailout is that the bailout of Fannie Mae and Freddie Mac has already cost almost $150 billion and could cost $100 billion more before all is said and done.

The irony here is that though the passage of the Trouble Asset Relief Program was the subject of a gigantic high-profile controversy, absolutely nobody paid attention when Congress passed and President Bush signed the Housing and Economic Recovery Act of 2008 back in July 2008. The debate over the HERA didn't spill over into the presidential campaign, nobody ran any ads in the 2008 or 2010 cycles hitting anyone for voting in favor of HERA. And the vote wasn't even close. It passed the Senate by an 80-13 margin.

Since the election, there's been a ton of commentary from right-of-center people about the evils of Fannie and Freddie but at the time of the actual bailing-out there was little comment on the action. Bryan Caplan said it was a mistake and we should have just let them flop, but Greg Mankiw and Tyler Cowen disagreed.

Fundamentally, I think Fannie and Freddie as they existed pre-crisis represented a bad implementation of the bad idea that government policy should promote the construction of large single-family owner-occupied housing. But the concept of pro-suburbanization industrial policy seems very broadly supported in American politics.