Fannie Mae and Freddie Mac

Whatever your feelings about the bailout bill, it's useful to understand what caused the economic downturn that led to its passage so we can learn from our past mistakes.

The story of Fannie Mae and Freddie Mac explain a big part of it, as historically neither company has been subject to really any scrutiny or oversight in their government-guaranteed lending practices. Check out this succinct history of the companies. Here's a noteworthy excerpt: "Fannie Mae and Freddie Mac are the only two Fortune 500 companies that are not required to inform the public about any financial difficulties that they may be having." These private companies get to play with our money in the mortgage markets -- a LOT of our money -- without any direct oversight or control. Fannie Mae and Freddie Mac, in other words, are like the Blackwater of the U.S. mortgage markets. The lack of transparency in these companies is a big reason for the economic issues we are facing today.

Let's hope our government can exert some financial restraint now that it is able to buy shares in two frighteningly large and unregulated companies. We should be paying very close attention to whomever Obama or McCain select as the next Treasury Secretary and we (i.e., Congress) should be demanding greater transparency from the Treasury Department so those guys don't "run wild" the way the mortgage lenders have.