Big government and big banks: Too Big to Fail 2.0


by NW Spotlight

We recently documented the de facto nationalization of the home mortgage industry, which is fattening government coffers by giving 100% of Fannie Mae and Freddie Mac profits to the federal Treasury.  This has left private investors at a complete loss, and a bill introduced in the Senate Banking Committee recently (Johnson-Crapo) will make permanent that rule.  That means investors will have no access to the courts to argue the merits of their case.  But, hey, who needs due process when there’s a political process?

Perhaps as disturbing is the fact that nobody seems to have learned from the financial crisis we suffered through in 2008 and 2009.  The bill leaves in place the same Big Government structure that existed beforehand, puts the entirety of the home mortgage balance sheet on the federal books ($5 trillion!) and even adds bureaucracy by creating an entirely new regulator to oversee the new regime.  So, rather than reducing the government role, Johnson-Crapo expands it.

But “big banks” make out well, too.  We’re loathe to adopt the language of the Left by labeling anything “big” as bad.  In this case, however, it’s hard to ignore their role in the mortgage meltdown and Johnson-Crapo will only swell their mortgage portfolios.  The bill breaks down bank barriers to vertical integration, meaning large banks can now be the guarantors, aggregators, and holders of credit risk for loans.  This leaves a large depository with the opportunity to leverage comprehensive services and discount pricing.  And, the bill makes sure that government is still in place to bail out the banks if necessary.  Call it “Too Big to Fail 2.0.”

If this bill goes through as is, chances are you’ll not have another community bank originate a loan because they simply won’t be able to compete.  That’s why community banks have strongly protested the bill.


This isn’t free enterprise; it’s big banks and big government using the political process to corner the mortgage market.