Apparently the Bailout-Provider-in-Chief feels like he got his political fingers singed over the past two years with the recession/foreclosure crisis. Yes, the highly anticipated “white paper” has been released by the federal government. A paper which promises to fix “fundamental flaws” in the mortgage market and reduce the governmental role in the housing industry. And in a quite surprising twist, the Socialist-in Chief intends to replace government operations with private equity.

Huh?

Believe it. Obama’s plan calls for the gradual phasing out of Fannie Mae and Freddie Mac, the now infamous holders of volumes of bad mortgage paper, and replacing them with private equity. What’s the catch? This guy never saw a government program he didn’t like. Why the sudden change of heart? We’re not sure there was any change of heart involved but Mr. Obama isn’t stupid in the traditional sense. He realizes these two agencies just about hung his presidency out to dry, and if he has any hope for a second term, he’s got to get that mess under control.

The three scenarios on the table are as follows:

1. No government role in the housing industry at all except through existing agencies like the Federal Housing Administration. We like this choice. Less is always more when it comes to government meddling.

2. A defined role that allows the government to interfere when the mortgage market is in “trouble.” The problem lies in the fact that the government will define what “trouble” means and there’s no reason to think they’ll have a clue about this either.

3. Continued government role, though not through entities like Fannie Mae and Freddie Mac. The plan calls for a slow return of Fannie and Freddie’s guidelines to those of private lenders, a process that is hoped will eventually, once the playing field is leveled, lure private money back into the mortgage market.

The big question is will any of this work? Our answer is, “Does it rain on Tuesday?” Answer: sometimes it does and sometimes it doesn’t. We give Obama no credit for forming commissions and flapping his gums, but we’ll be first in line to slap him on the back when actual action begins to draw the federal government out of this unholy mess.

The American Monetary Association Team

Flickr / billaday