FDR created Fannie Mae in 1933. LBJ turned it into a government-sponsored entity in 1968, but without a government guarantee. Then Richard Nixon created Freddie Mac in 1970 to compete with Fannie Mae, allowing both to buy non-FHA insured mortgages for the first time, again without any government guarantee. In fact, the government went out of its way to warn investors that neither entity’s debts were guaranteed. Yet investors assumed the government would make good on that debt if trouble arose. That assumption—the so-called “implicit guarantee”—proved correct. The moral hazard created by that implicit guarantee led to excessive risk-taking, fueling the housing bubble and playing a central role in the 2008 financial crisis. When the collapse came, Fannie and Freddie were placed into conservatorship. Shareholders were wiped out, but creditors were fully protected. By honoring their debts, the government did exactly what investors had always counted on it to do. Not only did this implicit guarantee fuel reckless speculation in housing, it also misallocated capital away from more productive sectors of the economy. Before the crisis, anyone who believed in capitalism and free markets opposed Fannie and Freddie. But as bad as they were then, Trump’s current plan threatens to make them far worse. He wants to resurrect them not with an implicit guarantee, but an explicit one. He claims they’ll retain their “implicit” guarantees, but once the government officially acknowledges such a guarantee, it ceases to be implicit by definition and becomes explicit. That means the damage Fannie and Freddie did before 2008 will pale in comparison to the harm they can cause if released from conservatorship under Trump’s plan. He will have set the stage for an even bigger mortgage crisis in the future. As much as I would like to see both agencies abolished, keeping them in conservatorship is far better than what Trump is proposing. His plan could go down as one of the worst economic decisions ever made by a U.S. president. Either Trump and his advisers don’t understand basic economics, or they simply don’t care about the country. They’re willing to sacrifice it for the benefit of their friends, who bought cheap Fannie and Freddie stock and stand to cash out billions.