I have been knocking around the concept of whether the GSEs should be become government agencies. It’s a strange predicament for the taxpayer, because of the implied guaranty that was bestowed on the GSEs by the federal government (strangely, to make President Johnson’s Vietnam War budget look more palatable).
That long debated guaranty was made tangible this past week with the housing bill that just passed both sides of Congress. The federal government, since the late 1960s, finally showed the public that the GSEs are too big to fail.
There was an ongoing concern that the GSEs were getting too big…
The dilemma for me is the fact that the taxpayers bailed out the GSEs. It could cost nothing, or as much as much as several 100 billion dollars, depending on how the economy and the housing market holds up.
This liability to the taxpayer is a significant financial benefit to the shareholders of GSE stock, perhaps bolstering their share price above where it may have fallen. Take on liability without future reward.
Of course it is also of significant benefit to the taxpayer to keep a key component of the housing market afloat, a lynchpin of our economy.
A short essay by Alice Rivlin of the Brookings Institution, covers this territory in: Do We Want Fannie Mae Public or Private?.
My cynical laissez-faire side says that government could not have managed this situation any better than the private sector did and vice versa. Look at how HUD has played a nominal role in solving this problem. Private sector innovation with actual, real, engaging, competent, regulatory oversight.
Not just government oversight…
Indivuduals need to reconsider placing themselves in harm’s way, financially.
Last week’s Op-Ed article by David Brook’s The Culture of Debt suggests that:
People don’t change when they see the light. They change when they feel the heat.
That Op-Ed piece inspired an hilarious response from a reader (hilarious to me, anyway):
Mr. Brooks does not mention one important reason societies develop good habits or bad ones: Our leaders can have transformative impact.
Franklin D. Roosevelt calmed us down. John F. Kennedy got us to volunteer. Ronald Reagan made us less dependent on government. George W. Bush could have asked us to sacrifice. He didn’t. His post-9/11 advice was to go shopping. Obviously, too many of us did just that.