Arnold Kling  

The McCain-Stiglitz Axis

The Lesson of the Housing Bill... Boys, Girls, and Math...

Regarding the Freddie-Fannie bailout, the Republican Presidential nominee writes,

if a dime of taxpayer money ends up being directly invested, the management and the board should immediately be replaced, multimillion dollar salaries should be cut, and bonuses and other compensation should be eliminated. They should cease all lobbying activities and drop all payments to outside lobbyists. And taxpayers should be first in line for any repayments.

The former Clinton adviser writes,

There may need to be a drastic reorganisation. There should be a charge for the “credit line” (any private firm would do as much) and, given the risk, it should be at a higher than normal rate.

Thanks to Mark Thoma for the pointer.

Believe it or not, there is an opposing view. The thinking is that if the plan is to squeeze shareholders, then nobody in their right mind will invest in Freddie and Fannie, which might increase the likelihood that taxpayers will have to take larger losses.

I lean toward the McCain-Stiglitz view. The priority should not be getting capital to Freddie and Fannie to support their growth. The priority should be diversifying the sources of mortgage finance.

Comments and Sharing

COMMENTS (3 to date)
Brian T. Pratt writes:

Hold it just a minute: -replacing management and cutting multimillion dollar bonus payments is not the same thing as damaging shareholders or driving away private investment and any claim to that account is fear mongering.

Gary Rogers writes:

And does this tough reform work kind of like the McCain Feingold legislation that keeps our campaign financing clean?

Tough talk sounds good from a candidate, but governments are simply incapable of delivering on this type of promise! I am becoming more and more convinced that Fannie and Freddie need to fail if we are going to keep any kind of integrity in the marketplace.

Gary Rogers writes:

Speaking of Fannie and Freddie, we also have the FHA which, as a totally government agency, has no transparency at all. I suspect that is another rotten apple that needs to be cleaned out.

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