Freddie Mac is treated across four episodes of The Bob Zadek Show as a central example of government intervention in the housing market and of the blurred line between business and government. Guests and host return to the government-sponsored mortgage enterprises as a cause or major contributing factor to the 2008 financial crisis, as a recipient of bailout money, and as an instance of crony capitalism. The excerpts do not supply a founding date, a corporate history, or a description of the company’s legal structure beyond the label “government-sponsored enterprises.”
The bailout and the case for exiting housing
In an October 2010 episode, Reason editor-in-chief Matt Welch listed getting the government out of the housing market as his first proposal for federal budget cuts. He asked why there is an entity into which $150 billion of bailout money had already been thrown, referring to Fannie and Freddie, which he said guarantee trillions of dollars worth of mortgages, including the toxic assets that were supposed to have been cleaned up A Libertarian Plan (2010). Bob Zadek framed the guarantee as a relatively new federal activity, saying that for most of American history people bought houses and paid fair prices for mortgages without any federal guarantee, and that private guarantees existed in certain instances but were not needed to fuel growth.
Welch argued that other countries without a similar institution have the same or higher levels of homeownership, and that unwinding the arrangement is complicated but necessary because it sits at the root of the financial and economic crisis. Zadek said the beauty of exiting the mortgage guarantee business is that no one would feel pain: qualified buyers would still buy houses at about the same mortgage price, and the only difference is that those who did not qualify could not buy. Welch responded that the pain would be felt by Wall Street companies that assumed the government would back their gambling, and by people who used their houses as ATMs or casinos; he said he was sorry their bad bet did not work, and that if the government exited, house prices would fall and homeownership for renters like him would rise.
Crony capitalism and the light bulb analogy
An August 2011 episode with Luigi Zingales returned to Fannie and Freddie under the heading of crony capitalism. Zingales said the disaster they created came from businesses with government support under the rubric of helping every American own a house, an idea so appealing it was difficult to fight, and that behind such ideas lay dramatic crony capitalism Obama Nationalizes General Electric (2011). Zadek called Fannie and Freddie a perfect example because of their size and because many people believe they caused or substantially contributed to the recent economic downturn. He described a once-private market for mortgage insurance, in which companies insured mortgages for banks, that the government entered by creating Fannie and then Freddie; the quasi-public entity competed with and ultimately crowded out private business, took government money, did the government’s bidding, and insured mortgages for people who did not deserve them. Zadek said the reason the entities survived so long and made so many mistakes is that they funneled money back to the elected officials who regulated them, producing an incestuous arrangement in which the lines between government and business were blurred rather than tested by a free market.
The 2008 crisis and the subprime mandate
In a January 2015 episode, John Allison, author of The Leadership Crisis and the Free Market Cure, said the primary cause of the financial crisis was government policy, and that the United States is a mixed economy rather than a free market John Allison on the Leadership Crisis and the Free Market Cure (2015). He said the economic correction was caused by government policies that incented people to buy homes they should not have bought, financed by the Federal Reserve artificially printing and expanding the monetary supply. The housing subsidy, he said, goes back a long period but became exponential because of a focus starting with Bill Clinton and other governmental leaders to force Freddie and Fannie Mae, described as giant government-sponsored enterprises, to have at least half their loans to subprime lenders. When they failed, Allison said, they owed $5 trillion and had $2 trillion in subprime mortgages, and they dominated the subprime market.
Zadek drew the takeaway that commentators including Paul Krugman who blamed the crisis on a failure of markets were wrong, because there were no markets involved; people were responding to government stimulus, and a free market would never have made the subprime loans. Allison agreed that government incentive created the crisis, while adding that a number of business leaders also failed by not taking a long-term perspective and by evading facts. He said his company BB&T had no single quarterly loss during the financial crisis. Zadek observed that shareholders ultimately came out fine because of bailouts, and Allison replied that some institutions, such as Washington Mutual, saw shareholders wiped out, and that crony statism produced injustice, with Citigroup saved and Wachovia failed for no rational reason except political contacts. Both men described the decision-making as arbitrary and unpredictable, and Allison said markets cannot handle arbitrary decisions by government officials with enormous power.
Arnold Kling’s connection
In a March 2023 episode on the collapse of Silicon Valley Bank, Zadek introduced economist Arnold Kling, noting that Kling earned his PhD in economics from MIT in 1980, worked at the Fed and later at Freddie Mac, started a web-based business in 1994, and has blogged at EconLog and written at arnoldkling.substack.com Arnold Kling: We Just Nationalized the Banking System—Now What? (2023). The excerpt records the Freddie Mac employment as a biographical fact in the introduction; Kling’s own remarks in the excerpt concern Silicon Valley Bank, deposit guarantees, liquidity facilities, nationalization of the banking system, regulation and moral hazard, not Freddie Mac.
Across episodes
The same question — whether the government should be in the mortgage guarantee business at all — is argued in the 2010 and 2011 episodes, with Welch and Zingales both treating Fannie and Freddie as crony capitalism and Zadek supplying the historical framing. The 2015 episode shifts the emphasis from the existence of the guarantee to the subprime lending mandate and the arbitrary bailout decisions, with Allison naming Bill Clinton, the $5 trillion owed and $2 trillion in subprime mortgages. The 2023 episode does not argue the question; it mentions Freddie Mac only as a line in Kling’s résumé. The excerpts show no resolution of the question and no change in the show’s critical posture, only a change in which aspect of the enterprises each guest emphasizes.
What the sources do not cover
The excerpts do not state when Freddie Mac was founded, what its legal structure or charter provides, who its officers or regulators are, or how it differs in function from Fannie Mae beyond being named alongside it. They do not give the size, terms or recipients of the bailout beyond Welch’s $150 billion figure and Allison’s $5 trillion and $2 trillion figures, nor do they describe any legislative vehicle, court case or amendment bearing on the enterprises. Kling’s work at Freddie Mac is mentioned only in Zadek’s introduction, and the excerpt does not say in what capacity or for how long he worked there.