Some commentators suggest that a private market for U.S. mortgages is no longer possible. Others argue that heavily subsidized government programs have crowded out private providers, making actual competition impossible. The five papers presented here look beyond the housing crisis to present various proposals for the long-term reform of government-sponsored enterprises (GSEs) and the U.S. mortgage market.
“If you don’t know who the sucker is at the table, it’s probably you,” runs an old poker saying. At the poker table of the current financial crisis, “We are the suckers,” opines Professor Russ Roberts as he makes the case that public-policy decisions have perverted the incentives that naturally create stability in financial markets and the market for housing.
This paper looks at the roots of the current crisis through an analytical framework of bad bets, excessive leverage, domino effects, and 21st-century bank runs. It shows that broad policy areas—including housing policy, capital regulations for banks, industry structure and competition, autonomous financial innovation, and monetary policy—affected elements of this framework to varying, but important degrees.
Former Mercatus Scholars Jay Cochran and Catherine England examine the three big Government-Sponsored Enterprises (GSE) in the United States: Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation), and the Federal Home Loan Bank System.
Arnold Kling, a member of Mercatus's Financial Markets Working Group, testified on the role of Fannie Mae and Freddie Mac in the current financial crisis before the House Committee on Oversight and Government Reform on December 9, 2008. In his testimony, Dr. Kling offered a series of lessons from the collapse of the secondary mortgage market.
While a privatized housing finance system would be ideal, it is likely that we need a government medallion (or backstop) for mortgage lenders. The idea would be to scale down the guarantee over time and let the private market return. A cooperative structure for a national securitization operation would eliminate the "cookie jar" nature of Fannie Mae and Freddie Mac.
Regulators, faced with another crisis in the future, will look to this precedent of preferential treatment for some and not others set by Secretary Geithner and his colleagues in 2008. When businesses come asking for money, government officials will find it hard to say no.
Secretary Geithner writes in today’s Wall Street Journal to remind us of the panic of 2008, because he fears that those of us who have the audacity to criticize Dodd-Frank might have forgotten how bad it was. This is the latest attempt by the Treasury Department to silence its critics during the implementation of Dodd-Frank.
Mercatus Center financial services experts Anthony Sanders, Arnold Kling, and Lawrence J. White discuss the future of GSEs, Fannie Mae and Freddie Mac, and the government's role in the U.S. housing market.
Please join Mercatus Center financial services experts Anthony Sanders, Arnold Kling, and Larry J. White in discussing the future of GSEs, Fannie Mae and Freddie Mac, and the government's role in the U.S. housing market.