Fannie and Freddie and Friends

Mark Thoma points to a series of presentations from the Roosevelt Institute, a left-oriented think tank. What struck me was Raj Date arguing for the elimination of Freddie Mac and Fannie Mae. He is quite firm on the point. He sounds like Russ Roberts when he discusses moral hazard.

In contrast, when I spoke as part of an informal panel to a group of Republican Congresspersons, they were quite squishy on that subject. And Timothy Geithner is much worse than squishy--he will not countenance putting Freddie and Fannie on the books of the Federal government, which would be a step toward forcing politicians to make a decision about them.

In the world of economists looking at public policy, it is much easier to find enemies of Freddie and Fannie than it is to find friends. In the world of Washington, it is the other way around.

What is ironic to me is that the Roosevelt Institute people can cite clear evidence of government failure while proposing more government. For example, Richard Cornell points out that bank soundness regulators have every incentive to be lax until it is too late, yet his proposed solution is to consolidate bank regulation. Cornell begins his talk by listing comic book characters who never seem to learn (Charlie Brown, Wylie Wile E. Coyote). In my opinion, he could be talking about policy wonks who think that regulation can be reformed so that special interests can be curbed and regulators will act wisely.

In selective cases, and without consciously realizing it, these folks apply public choice theory. But they assume it away when making their proposals.

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