• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Time to End Fannie and Freddie

    President Bill Clinton’s Secretary of the Treasury Lawrence Summers and Heritage don’t always agree. But few experts seem to be satisfied that the new regulator for Freddie Mac and Fannie Mae will be enough to address the systemic risk Fannie and Freddie pose to our financial system. Summers wrote in the Washington Post yesterday:

    [T]he government should use its new receivership power to protect taxpayers and the financial system. In the process, payments to stockholders, holders of preferred stock and probably subordinated debtholders would be wiped out, conserving cash for the benefit of taxpayers. The GSEs’ borrowing costs would fall considerably, helping prospective homeowners. … Once the crisis has passed, the federal government would divide their functions into government and private components, the latter of which would be sold off in multiple pieces. The proceeds could be used to fund the low-income housing support activity that was previously mandated to the GSEs.

    Heritage scholar JD Foster writes in the Orange County Register:

    As Congress readies a bloated housing bill, Americans should demand Congress ensure this kind of financial threat never looms again. Strengthening the federal regulator for FM2 is fine, but we really need to break these financial goliaths into many, much smaller and truly private companies. Unfortunately, there isn’t time now to scheme the breakup of FM2 properly. Instead, Congress should separately task the General Accountability Office and the Federal Reserve with producing a study with its recommendations on how FM2 might be restructured into a variety of private, separate companies.

    Once cut down to size and properly regulated, these new companies would pose little risk in and of themselves, would never become too big to fail, and so would lose their implicit guarantee of a future bailout. It’s not enough to call in the ambulance. We need to catch the mugger who perpetrated this crime – and make sure he never haunts the neighborhood again.

    Posted in Ongoing Priorities [slideshow_deploy]

    Comments are closed.

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.