The worry is that if the government cannot or will not extricate itself
from Fannie and Freddie, it will face similar problems should it
eventually nationalize some large banks.
Here is more, interesting throughout.
Sentences to ponder
Previous post: Lee Smolin on general equilibrium theory
I blogged about this early today, in fact.
If a government bail-out is assured, company managers simply do not have much incentive to ensure the company is “built for survival” in both good times and bad.
My blog asks the question: does Too Big To Fail imply we should break them up?
How many bail-outs does Citi need, anyway? Isn’t this its third or fourth bail-out, in Citi’s company history?
You have got to read this NYT article about Fannie Mae from 1999: “Fannie Mae Eases Credit To Aid Mortgage Lending”
http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&scp=1&sq=fannie%20mae%20eases%20credit%20&st=cse
which says:
“In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980′s.
”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.””
So, it was all there in black and white in 1999.
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