Fannie/Freddie Rescue Not Radical Enough

Feds must return GSEs to original purpose of providing liquidity
By Kevin Spak,  Newser Staff
Posted Sep 9, 2008 11:33 AM CDT
"We should consider setting up a new government entity," Steven Rattner writes. "Responsibility for providing liquidity to the mortgage market would be transferred to this new entity."   (AP Photo)
camera-icon View 3 more images

(Newser) – The Treasury’s rescue plan for Fannie Mae and Freddie Mac may be “superbly crafted,” Steven Rattner writes in the Washington Post, but it won’t solve the government-sponsored entities’ problems. Continuing as private-sector enterprises is a setup that “simply doesn’t work.” The GSEs had every incentive to abuse their government backing to profit private shareholders—and they did.

Now, the government should take whole ownership of the GSEs and return them to their narrow original purpose: providing liquidity for the mortgage market. Once stable, this new government body could sell off Fannie and Freddie’s assets, repaying first the companies’ debt, and then the shareholders. And then we’ll have to ask ourselves the biggest question: How much help should the government give housing?