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News Link • Government

Fannie and Freddie Need a Simple Fix

• http://www.slate.com, By Matthew Yglesias
  Everyone agrees they should be “wound down” and in some sense replaced with a new system. And everyone agrees on two things about this system. One is that it should somehow involve less big government, and the other is that it should somehow deliver the same amount of subsidy to home-buyers. This is a nutty consensus. The subsidy strikes me as undesirable, but insofar as the subsidy is going to be delivered the way to deliver it is through a direct big government provision of subsidies.
 
The first question to ask yourself is this: “Should there be a major government program whose purpose is to subsidize leveraged home-purchasing by middle class people, thus making the homeownership rate marginally higher and the average size of owner occupied houses marginally larger than it would otherwise be?” The correct answer to this question is obviously “no.” At the same time, it’s clear that all Democratic Party politicians and all Republican Party politicians agree that the answer is “yes.” So then the question becomes, what is an intelligent way to design such a program?

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