Fannie Mae and Freddie Mac Should Be Cut Down and Cut Loose
Cut the government-sponsored behemoths down to size and let the market take care of them
They are correct, but such good economic advice is too often trumped by politics. A new regulator is unlikely to be any better than the old regulator because the whole notion of a government-sponsored business is thoroughly politicized and inherently corrupt.
Fannie and Freddie may be "too big to fail," but that means they are also too big for taxpayer bailouts.
Potentially massive loans from the Treasury and Fed are no solution to their already excessive debt—the last thing they need is more. These two politically privileged companies pose a "systemic risk" to the economy precisely because they became much too big in the past two decades. Any serious solution must begin by requiring Fannie and Freddie to do what other troubled firms are routinely required to do—sell assets, raise capital, and reduce debt.
Fannie Mae and Freddie Mac need to be downsized and de-leveraged, relieved of special privileges and loan guarantees, and broken into small pieces agile enough to sink or swim on their own, without taxpayer support.
Alan Reynolds is a senior fellow with the Cato Institute and the author of Income and Wealth.
Reader Comments
FANNIE MAE AND FREDDI MAC SWINDLERS ESCAPE JUSTICE
It is notoriously suspect that the Subprime Lending and Stock Trading Scam on the American People was shrewdly pulled off by crooked lobbies working in collusion with the Bush, Reid, and Pelosi Government, who systematically allowed control to be taken away from the regulatory Office of Federal Housing Enterprise Oversight over the government buyers of "conforming" housing loans, Fannie Mae and Freddie Mac.
Criminal investigations leading to heavy fines, long prison sentences, and a full recovery of the assets stolen from the America People are imperative, to sustain honest government; rather that the proposed ruinous inflationary government bail-outs so desperately proposed by Podhoretz Neo-Con Bush.
Blame it on Wall Street, pa-lease!!!
Bill, are you still a Fannie/Fred lobbyist? Blame it on Wall Street is such an easy (but incomplete) explanation, however quite popular. Heck I guess we live in a populist culture, so I do not blame you. If indeed you're not a lobbyist now, I suggest you go back to work, you certainly know how to posture, especially given an overall ignorant public and clueless Congress. Wall Street was one factor in this mess. Big government and the FED are ultimately to blame, as is nearly every macro economic issue. One can pick an Enron or Bear Stearns out of thousands of private companies, but I can list hundreds of failed government programs, initiatives, sponsors, subsidies, grants, bailouts and loans, moreover other market tinkering that measures in the trillions of even our week dollar. Dissolving Fannie/Freddie is the answer, I do not believe every American is entitled to affordable housing, sounds cruel, I know.
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