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"The Hotel of Impossible Promises"

Bob Higgs understands and eloquently explains the fundamental reason why Fannie and Freddie collapsed.

On this same topic, I sent the following letter a few days ago to the New York Times:

To the Editor:

Coming as it does during the crisis involving
Fannie Mae and Freddie Mac, Bob Herbert’s unconditional praise of
Medicare and Medicaid is curious ("Hold Your Heads Up," September 9).

Fannie’s
and Freddie’s troubles are textbook examples of what happens when gain
is privatized while risks and losses are socialized: private decision
makers are led by an invisible hand to screw things up.  The same
underlying dysfunctionality that created America’s housing-market
troubles is needlessly driving up health-care costs: Medicare and
Medicaid privatize the benefits of health care (medical attention for
patients and handsome fees for physicians) while socializing the
costs.  Spending other people’s money leads patients and doctors to
overuse, and to use inefficiently, health-care resources – and, thus,
to unnecessarily drive up health-care costs.

Sincerely,
Donald J. Boudreaux

Russ’s May 18, 1995 Wall Street Journal essay is also relevant here.

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