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Reason Foundation

Fannie Mae and Freddie Mac Were Never Privatized

Chris Mitchell
September 17, 2008, 1:11pm

In a new column, Reason's Sam Staley and Anthony Randazzo write:
The re-nationalization of mortgage insurers Fannie Mae and Freddie Mac presents a serious challenge to national housing policy. But it is important to note that the failure of Fannie Mae and Freddie Mac is not an example of privatization gone amok; it is an example of what happens when privatization doesn't happen in the first place. Despite all appearances, the firms were never really private; rather they operated as anomalous "government-sponsored enterprises." As GSEs, Fannie and Freddie had stockholders, boards of directors, and made profits from interest on the loans they securitized. However, their profit motives were skewed by their beliefs (correctly) that the government would cover any big financial losses. Like playing poker with someone else's money, you're more likely to place chips down on a risky bet if its only pride you have to lose. This fundamental flaw inherently them from being fully private companies.
Full Column Here

Chris Mitchell is Director of Communications/Media Contact


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