Official Libertarian Response

'Let them fail'

Government bailouts of Freddie and Fannie like giving candy to problem children

"Let them fail," says Libertarian Party spokesperson Andrew Davis, referring to the mortgage institutions Freddie Mac and Fannie Mae, who the Bush administration has said it plans to rescue from financial collapse.

"Let them fail, and let them learn from their mistakes on their own dime," says Davis. "Bailing out these two institutions will only delay the inevitable outcome of any financial firm insulated from the market by government backing. The long run damage of continuing a policy of bailouts far exceeds any short term woes in letting the market consume failing institutions."

The Libertarian Party is calling for an end to government bailouts, which it equates to nothing more than welfare for businessmen. The Party believes that government support of these institutions decreases the incentive to make responsible decisions, and unfairly socializes the risk--putting taxpayers on the line for costly mistakes.

"It's like giving more candy to problem children," says Davis. "Lenders should recognize that there are repercussions for risky loans, and borrowers should realize that there are consequences for taking loans they can't repay. If it's financial collapse, or having your house foreclosed--so be it. It's bad economics to remove the incentives, even if they are negative, which encourage sensible and responsible decisions."

The Party says Freddie and Fannie should be fully independent of government support, and subject to the same levels of market competition other firms face.

"I could not agree more with the editorial page of yesterday's Financial Times when it said that the current structure of these institutions cannot be maintained, and that government should prepare a 'decent burial' for them," says Libertarian Party National Chairman William Redpath. "Freddie and Fannie are not needed for mortgage finance in the United States. No credible commentator thinks that the failure of these two institutions would add even as much as one percentage point over the long-term to mortgage rates. Congress and the President need to quickly move Fannie and Freddie to privatization with no strings attached to the federal government and taxpayer."

The Libertarian Party is America's third largest political party, founded in 1971 as an alternative to the two main political parties. You can find more information on the Libertarian Party by visiting www.LP.org. The Libertarian Party proudly stands for smaller government, lower taxes and more freedom.