Fannie/Freddie Rescue Not Radical Enough

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? (More Fannie Mae stories.)