Reforming GSE's - Fannie, Freddie, and the Future

Apr 26, 2011
Rayburn H.O.B. B-340

Event Speakers

Arnold Kling

Senior Affiliated Scholar

Please join the Mercatus Center’s Capitol Hill Campus! This luncheon will feature two of Mercatus’ premier scholars, addressing the need and possible forms of restructuring Fannie Mae and Freddie Mac.

Dr. Arnold Kling discusses two ways to look at GSE’s. One approach, the “devil you know” strategy, would restore the status quo ante, meaning that Freddie Mac and Fannie Mae would be returned to the investing public as private corporations with government backing, able to purchase loans for securities and able to hold securities in portfolio, subject to limits on loan amounts and subject to safety-and-soundness regulation. The other approach, the “Jimmy Stewart banker” strategy, would get the government out of the mortgage-guarantee business and let the mortgage market evolve in a decentralized way. In this system, mortgage lending would return to local banks, which would retain the loans that they originate.

Dr. Anthony Sanders asks “can the private sector offer a less costly alternative to Fannie and Freddie, with far less government involvement in the housing and mortgage market?” What is unique about Fannie/Freddie that the private sector could not provide? Both Fannie/Freddie and the private sector have loan-underwriting models; both can purchase loans and create mortgage-backed securities (MBS); both the private and public sector can offer mortgage insurance.

The one thing that Fannie and Freddie have that the private sector does not is an explicit guarantee from the federal government. If the private sector can replicate Fannie and Freddie’s only defining “virtue”—a federal-government guarantee—then there is no justification for keeping Fannie and Freddie around either in conservatorship or in their pre-conservatorship forms. Is that possible? What are the potential consequences?

Join us Tuesday, April 26th at Noon in Rayburn B-340. Due to space constraints, this program is not open to the public. It is open and free of charge to all Congressional, federal agency, and Library of Congress staffers. Lunch will be provided. Please no interns without prior approval. For any questions, please contact Aaron Merrill at (703) 993 7729 or amerril2@gmu.edu.