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Reason Foundation

Fannie & Freddie: The role of government

Anthony Randazzo
September 9, 2008, 1:51pm

Imagine a small town with three fishing boats providing seafood for the local citizens. Once the chief suppliers of crabs and trout, these boats hit hard times as the townsfolk began to change their preference to catfish and even meat products. To make it worse, new boats, from other towns, began showing up with better equipment and new technology for finding fish. For the last few years the traditional boats have run a deficit, and are struggling to meet the costs of heading out to sea. In desperation, the old boat captains go to the town council to ask for help. They need money to buy new computers that find fish, like the out of town boats. They admit their boats are in bad shape, and critics wonder if the boats will sink before the captains can pay the town back. Furthermore, not everyone in the town eats cod and trout, or even fish for that matter. Why should their local tax dollars go to support these three captains, when some taxpayers don't need the boats to meet their nutrition demands and other ships are providing the fish people do want? What is the role of government? To bailout failing businesses such as Bear Sterns, Fannie Mae, and Freddie Mac? Or to let creative destruction, societal evolution, supply and demand, and consumer choice drive the market?

Anthony Randazzo is Director of Economic Research


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