From GSE to Government Agency

Tanta says:

Fannie Mae didn't start out as a "GSE," it started out as a government agency. It can go back to being a government agency if the government needs to further the economic goals of liquidity in the home mortgage market--and maybe it can go back to doing business with Podunk National, rather than lavishing its capital on mega-lenders who aren't going to be subject to regional liquidity crunches. All this uproar over "nationalizing" the GSEs seems to me the part that is really overblown. If they can't raise enough capital as shareholder-owned entities to prevent the necessity of periodic bailouts, then let's end the experiment with "GSEs" and make them agencies of the government. Any "rescue" that doesn't wipe out the shareholders is simply making a bad thing worse.

Brad Delong says this is the "Laura d'Andrea Tyson line on the GSEs" as well which reminds me that I've been meaning to wonder aloud if she's going to be our next Secretary of the Treasury.

At any rate, I'm only a lowly blogger but the idea of "government sponsored entities" doesn't make a great deal of sense to me. The things we need government agencies to do should be done by government agencies, other things should be done by market actors who are subject to ordinary risks.

Comments

This whole thing was a scheme cooked up by those who would benefit from it to benefit those who cooked it up.

Posted by the obvious one | July 14, 2008 3:11 PM

This whole thing was a scheme cooked up by those who would benefit from it to benefit those who cooked it up.

Posted by the obvious one | July 14, 2008 3:37 PM

At any rate, I'm only a lowly blogger but the idea of "government sponsored entities" doesn't make a great deal of sense to me. The things we need government agencies to do should be done by government agencies, other things should be done by market actors who are subject to ordinary risks.

I agree, and I don't see why we "need" a government agency to use the taxing authority of the federal government to provide cheap mortgage loans to the public.

Further, Fannie and Freddie have gotten themselves into trouble by buying up bad loans by the bushel. This was done acting as a quasi-private enterprise, with incentivized, performance-based compensation, and the possibility of being ousted by shareholders. Does anyone want to guess how bad the losses would be at Fannie and Freddie without these incentives/pressures, as in a purely government run agency? Probably even worse.

It's time the federal government got out of the lending business.

Posted by Jeff | July 14, 2008 3:55 PM

Yes, but GSE's make it easier for wealthy, connected individuals to socialize risk while privatizing profit (as Professor Krugman put it). And what would we do without an obscenely rich super upper-class with a monstrously overblown sense of entitlement?

Posted by Jack | July 14, 2008 4:07 PM

I know GSE is a narrow term aimed at Fannie and Freddie, but how would you classify things like Corporation for Public Broadcasting, Amtrak, the Postal Service and other institutions that carry out services under both sponsorship of and oversight by the federal government? (And where's the military going?)

Posted by ignoreland | July 14, 2008 4:19 PM

This was done acting as a quasi-private enterprise, with incentivized, performance-based compensation, and the possibility of being ousted by shareholders. Does anyone want to guess how bad the losses would be at Fannie and Freddie without these incentives/pressures, as in a purely government run agency? Probably even worse.

In 2007 Fannie Mae's CEO Daniel Mudd received $12.2 million in compensation. Hard to picture a civil service agency paying that well for such gross negligence.

Anyway, it's precisely *because* of it's quasi-private enterprise status with all incentives you mention that caused the problem in the first place. Here's a really good explanation.

Posted by justinb | July 14, 2008 4:25 PM

I've been trying to figure out who's going to run Treasury myself.

I assume Austan Goolsbee would rather not manage a big bureaucracy, and he doesn't have any experience with it. I sort of figured the naming of Jason Furman as chief economic advisor or whatever meant that he was first in line. But I don't know.

Laura Tyson seems like an eminently worth candidate ... someone who has centrist credentials but was on the left edge of "center", and who has tilted left since the end of the Clinton era, in the way many centrists have.

Posted by Nicholas Beaudrot | July 14, 2008 4:43 PM

Privatization has always been a 3-1=4 proposition, but this implosion should be the final nail in the coffin.

The only reason to create a government program is to meed some need that private interests fail to meet. To believe a private corporation can do the job better than the government, which only did the job in the first place because private actors failed to do it, is silly.

Posted by Aatos | July 14, 2008 5:56 PM

Tyson would be a great pick.

Also:
"Gov. Arnold Schwarzenegger of California, who has endorsed Senator John McCain and called his fellow Republican a role model, suggested in an interview broadcast Sunday that he would be willing to serve as an energy and environment czar under Senator Barack Obama should he win the presidency."

http://www.nytimes.com/2008/07/14/us/politics/14schwarz.html?ref=politics

Posted by Peter K. | July 14, 2008 6:03 PM

Justinb,

That was a good read. Thanks for the linkage.

Posted by Jeff | July 14, 2008 6:36 PM

Tyson's been hangin' in London the past few years, honing her international perspective, and her old deanship at Berkeley just went to another prof, so something like Treasury would be a good move.

Posted by Tom | July 15, 2008 3:14 AM