More Capital Needed at Fannie Mae and Freddie Mac

Yesterday, shares in Fannie Mae, the government-sponsored Federal National Mortgage Assocation were down 16 percent, while shares in the government-sponsored Freddie Mac were down 18 percent. There was concern on the market that both needed “to raise more capital amid larger-then-expected losses.”

So the brilliant managers at the government’s mortgage mills are going to need a bailout too. Only, you can bet that the shareholders of Freddie Mac and Fannie Mae won’t get the haircut that the folks at Bear, Stearns got.

The idea of government-subsidized mortgages was to make housing more affordable to the average American. Something seems to have gone wrong.

Here are the numbers. In 1950, when per-capita income was $2,000, the median house price in the US was $7,350, according to the Census Bureau, or 3.7 times income. Today, with per capita income around $47,000, the median home price is about $220,000, or 4.6 times the median house price.

So with all that subsidy and help from our elected officials, houses cost more than they did half a century ago.

That is what you call progress.