July 14, 2008
Can't Say They Weren't Warned
I guess we take another step toward nationalizing the secondary mortgage market this morning. Only Congress would vote to expand the scope and authority of an entity the same quarter it votes to bail it out. Everyday Economist links to a superb summary of How we got into this mess by James Hamilton at Econbrowser.
And the WSJ Ed Page offers a nice collection of editorials they have run about Freddie and Fannie, They call it Fannie Mayhem, but they could have called it I told you so.
I'm saddened but far from surprised, There was always an implicit government put on these two GSEs. Everyone knew it, it's just come out in the open.
Economics and Markets
Posted by jk at July 14, 2008 10:42 AM
This was so obvious to anyone who understands that government intervention breeds nothing good. It took several decades, but more of FDR's chickens have come home to roost.
"Fannie Mae is a disaster waiting to happen. The trouble is that it is neither fish nor fowl. Fannie Mae’s government connections insulate it from discipline by markets and investors. Worse yet, the markets believe (with some justification) that the federal government has (implicitly) guaranteed fannie Mae’s debts, which allows it to also avoid by market discipline by borrowing at below-market rates. Moreover, because the board includes political appointees, it is further insulated from investor discipline. The solution is privatization. Let it run as a for-profit corporation in a competitive market, with full disclosure."
Professor Bainbridge wrote that in November. November *2004*. Link
This was so obvious to anyone who understands that government intervention breeds nothing good. It took several decades, but more of FDR's chickens have come home to roost.
"Fannie Mae is a disaster waiting to happen. The trouble is that it is neither fish nor fowl. Fannie Mae’s government connections insulate it from discipline by markets and investors. Worse yet, the markets believe (with some justification) that the federal government has (implicitly) guaranteed fannie Mae’s debts, which allows it to also avoid by market discipline by borrowing at below-market rates. Moreover, because the board includes political appointees, it is further insulated from investor discipline. The solution is privatization. Let it run as a for-profit corporation in a competitive market, with full disclosure."
Professor Bainbridge wrote that in November. November *2004*. Link
Posted by: Perry Eidelbus at July 14, 2008 3:12 PM | What do you think? [1]