What's Ahead for Fannie and Freddie?
February 2011

You probably became better acquainted with them during this past financial crisis. They are the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), two secondary mortgage securing instruments bailed out by the American government in 2008. Last September, the government had so far injected 150 billion dollars (US) to rescue Fannie and Freddy from corrupt assets. The US Congress assessed the total cost of the bailout, paid for by the good people of America, at almost 400 billion dollars over a period of 10 years. It’s all about private enterprise when business is good, but communization is the answer when everything falls flat. We know the drill.

This is nonetheless interesting when placed in a historic context. Twenty years ago, we were cooperators but didn’t exactly scream it on the rooftops, not even in our very own environment. We were business people and cooperation was a tool that helped us do better business, that’s all. The idea of having an economy based almost wholly on cooperatives appeared exaggerated, even dangerous… Didn’t cooperation and communism share certain ideological connections?

Looking back, we can ask ourselves if there really was any reason to worry about cooperatives having too great a role in the business world. Quite the contrary, we should have feared the domination of capitalist enterprise of our economy! They’ve taken over everything and their recurring slips are relentless at causing disaster after disaster. More and more experts are condemning this entrepreneurial “monoculture” which we now live in. The capitalist system, acclaimed as dogma since the fall of Soviet communism, is apparently powerless to ensure the harmonious development and permanency of collectives.

“We must break away from capitalism,” states Hervé Kempf, writer and journalist with Monde. Stay in a market economy, but find other ways of doing business, other models that would allow for both economic development and social justice. As for Louis Favreau, sociologist and professor with the Université du Québec in the Outaouais, he devotes one full chapter of his latest work: “Mouvement coopératif et projet de société: pistes de sortie du capitalisme” [Cooperative movement and societal venture: Ways to withdraw from capitalism] It’s clear: cooperatives are now part of the solution.

Now back to Fannie and Freddie. Hold on to your hats: The organization responsible for verifying, evaluating and investigating the United States Congress, the Government Accountability Office, has just published a voluminous report proposing to restructure Fannie and Freddie… into cooperatives. Various options are considered, but the cooperative model is deemed to be the best overall solution. In fact, early last fall the New York branch of the US Federal Reserve (commonly referred to as ‘Fed’) also recommended the cooperative model: the press release explained that the reorganization of Fannie and Freddie should promote the availability and stability of mortgage financing while reducing risk and costs to taxpayers. A new resilient and stable business model is needed, one that can survive economic cycles. And the cooperative structure is the one that best represents all of these components.  

What remains to be seen is how this transformation can be achieved: a cooperative cannot be ordered from the top, it must start from the bottom. But history is filled with irony. In an economic analysis written by Susan Woodward and Robert Hall, we learn that there was a time when Fannie and Freddie were both organized as... cooperatives. Should the proposal of reconverting Fannie and Freddie into cooperatives be chosen, what an incredible roundabout route will have be taken to appreciate the benefits of cooperation – more specifically, at what price!

 

Colette Lebel, agr.
Director Cooperative Affairs
and Board Secretary Assistant
La Coop fédérée
Email: colette.lebel@lacoop.coop
Fax: 514 850-2567
 



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