“Reforming a Broken Mortgage System”
Treasury Secretary Geithner testified Tuesday on a long-term plan to reform Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) now in limbo. But we don’t have to wait for years to reform the mortgage system—there’s a better approach that could be introduced right away.
The business model of Fannie Mae and Freddie Mac is fundamentally unsound. These public-private partnerships are supposed to serve the public interest as well as the interest of shareholders. But the interests were never properly defined and reconciled.
Managements’ own interests were more closely allied with the shareholders. They had an incentive to lobby Congress—both for expanding ...