Over the weekend, the United States government tried to correct one mistake with another: Under intense pressure from foreign governments – especially the Chinese government who are the single largest investor in Fannie Mae and Freddie Mac – Uncle Sam took out its checkbook. With a flourish of the pen, the Treasury nationalized these failing financial behemoths. In the process, it wiped out any remaining common shareholder value, eliminated stockholder control over the company’s operations and fired (but will still pay millions in golden parachutes) one of the most inept management teams in the history of any undertaking.

In yet another stunning example of crisis management, lack of planning, and most of all – lack of leadership control of an organization – a pillar of both the real estate industry and the global economy itself crumbled. If the situation sounds a little too familiar to you, perhaps you’re wondering: Where’s my government bailout?

WIth more than $5 trillion in debt, Fannie and Freddie’s economic disaster is staggering. Had they completely failed (although government conservatorship isn’t too much removed from it) they may have wiped out a sufficient amount of the cash-reserve holdings of the nations top 15 banks, causing a cascade failure throughout the entire financial system. Yet the greater scandal isn’t the crushing size of the disaster that could have been: it is the shock and surprise by the political leaders who were pulling the FanFred strings for decades. Even their patron saint, Barney Frank, acted as if the near-disaster arose out of the blue. Like Nero, too many have fiddled while the city has slowly burned.

The “it will turn out all right” side of the story is irrelevant; It still might not and cleaning up a disaster on sheer wishful thinking and media spin won’t stop reasonable investors worldwide from fleeing the funds, and potentially US markets in droves. Contrary to popular belief, the housing market is not going to get the boost people think it will. Even if mortgage rates dropped a quarter of a point, it would only amount to the same as a 10% discount on all existing listings. We’ve tried this game before – with “fire sales” of current home inventory – and it didn’t do much more than push near-ready buyers over anyway. Most of the buyers who are on the sidelines aren’t just waiting for a lower price of a home. They are waiting for a stronger dollar, lower inflation, larger growth rates and an energy policy that does not force up the cost of food products because we’re sticking corn in our gas tanks. Buyers whose down-payment continues to erode in front of their eyes every week – mostly from food and energy inflation – aren’t going to make a move now – because the failure of a financial behemoth and the reaction of the US government to nationalize it will scare them a lot more than simply staying put and riding out another year or two in their current home or apartment, hedging their bets against what little cash or equity they have bet.

The government take-over of Fannie and Freddie is not going to help the real estate industry get back on its feet.

Beyond all of the economic reasons is the one thing that nobody in government, and few in business, is likely to want to talk about. Fannie Mae and Freddie Mac failed because of poor leadership. It’s a simple as that. In fact, they suffered the same classical leadership-to-disaster pattern as too many real estate companies (and businesses in general) are suffering today.

Their central error: The management team was not in charge of the company’s operations.

At Fan and Fred, decisions on what “deals” to take and how to do them were decided by politicians, who had no economic basis for their actions. They simply wanted to reap the glory of expanding home “ownership” at the cost of any soundness of the actual deals. No consideration was made regarding the profit requirements to service the loans – or the sustainability of the mortgage holders to pay them back. They treated Fan and Fred like “miracle cures” to the illness of “rentership.” And the management team at Fan and Fred were politically beholden to their government sponsors – patronage was how they got their jobs in the first place – because nobody who should have been qualified to run the institutions could possibly have let more than 5 trillion in debt pile up. You don’t accrue obligations of that size by accident, only by negligence.

The story is very similar to real estate companies in crisis today. The leaders have been prevented from making sound judgment for years, taking on debt and doing un-sound deals to this day. During the boom time, too many brokers turned control of their operations over to their agents. Why set standards of performance when the money was rolling in? Of course, when the market slowed down, and they finally looked at the books, they found that most of the deals they made were accompanied by expensive practices that really didn’t leave too much of a profit. Top line revenue up; net was still marginal. When the market turned down, but the bad deals kept coming in, they plunged into the red.

Like Fannie Mae and Freddie Mac, many brokers find themselves under staggering debt and dysfunctional operations. The solution, they think, hope, pray for is some kind of bailout: If the market would just bubble-up, they could use some cash flow to staunch the bleeding. If the mortgage rates would just drop, buyers would come off the sidelines and rescue their businesses. If sellers would just be more reasonable, their agents wouldn’t bring home so many overpriced, un-sellable deals that are driving up their marketing expenses. Every single “if” remains external, outside, a third-party bailout of their failing business. In fact, none is likely to happen, at least not before their operational crisis grows to FanFred proportions.

What both real estate companies and the GSE’s need today isn’t just more money. Throwing taxpayer cash at Fan and Fred can only stop the bleeding, but the disease will continue to kill the patient. The same for a “flurry” of real estate deals – a few months of cash flow won’t rescue a brokerage whose fundamental business practices are beyond the control of the broker and essentially incorrect. In both cases, what has to happen is a change – or more accurately, a “return to” – leadership control by the owners of the companies. For real estate companies, this means the broker needs to retake control of his operations from his agents. The broker must set the mission, standards of performance and operational procedures. Leaving these decisions to the willy-nilly whims of floundering salespeople who have never run a business before is like letting the lunatics run the asylum. Same for the financial houses: they must be allowed to have independent decision making power for their investment strategies, not be told by Massachusetts and Connecticut Senators that they have to sell marginal, unsustainable mortgages to people who are most likely to default. In both cases, the leadership has to be free to lead, and make decisions based upon market realities, not the whims of uncontrollable personalities disconnected from the business necessities of making a profit.

Without leadership empowerment, the ending of this story isn’t very pretty. For taxpayers, the lack of leadership at Fannie and Freddie has left them footing the bill. When the government nationalized the S&L’s before, or semi-nationalized Chrysler, they got their money from the taxpayer. This means really bad news for the housing market, because an increased tax burden will further paralyze home purchases. Scariest of all, for the real estate industry, a more-paralyzed housing market will come at a time when the industry traditionally enters a slow period – the holidays are less than a 8 weeks away. Normal housing activity slows during the winter holidays anyway; rising inflation, energy costs and now the bill for bailing out Freddie and Fannie’s failed leadership means there will be few presents under the tree this year, perhaps few new roofs above the trees themselves. We are definitely entering the “Winter of Discontent” for real estate brokers. A large number of them may not survive until Spring, unless they do the one thing that could possibly save their companies: Return to leadership. Return to the principles of sound business practices, mission planning, operational efficiencies and salesperson accountability. They must take control of their companies now, fast and hard. Because if they do not, they are going to find that neither the consumer nor the government is going to bail them out.