Fannie's and Freddie's Fates No Surprise to Good Economists

by Don Boudreaux on September 22, 2008

in Current Affairs, Financial Markets, Reality Is Not Optional, Regulation

Monday-morning quarterbacking is as easy as it is self-indulgently gratifying.  Forward-looking perceptiveness is much more difficult and, hence, much more impressive.

In 2001, Jay Cochran (then with the Mercatus Center at George Mason University, and a GMU Econ PhD) and Catherine England (former Senior Policy Analyst at the Cato Institute) co-wrote this paper predicting trouble with Fannie Mae and Freddie Mac.  In a 2001 interview about the paper, Jay said the following about the special privileges Congress granted these government-sponsored enterprises (GSEs) :

These privileges do more than just give the GSEs a funding cost
advantage, they also reinforce the perception of a federal guarantee on
GSE debt obligations.  In order to avoid a federal bailout like the one
we saw with the savings and loan industry, policymakers may want to
consider a variety of alternatives, including privatization of one or
more of the GSEs.


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