New Op-ed at Fox News: The Fannie Mae and Freddie Mac Mess

My new piece on Fox News starts off with this:

Should the government cover a private company’s losses during bad times, but let it keep their profits during good ones? It doesn’t sound like a very good deal for taxpayers. But that is how we treat Fannie Mae and Freddie Mac, the two big corporations that make loans and loan guarantees as well as handle the secondary mortgage market in the US.

As most probably suspect, this whole approach is pretty dubious. If you subsidize risk, you get more of it. If you don’t have to bear the cost of the risk, why not shoot for the moon? Economists believe that the federal government subsidizing risk is what caused the whole saving and loan meltdowns during the 1980s.

On Saturday, the Senate followed the House and overwhelmingly passed a massive “housing bill” that promises an unlimited line of credit to Fannie Mae and Freddie Mac. Of course, these two companies already get all sorts of preferential treatment. For example, they are exempt from all state and local income taxes. . . .

abudzar