Tuesday, September 9, 2008

Fannie Mae and Freddie Mac: The Silver Lining and the Risks Ahead

The magazine The Economist gives us some much needed good news among all the bad ones:

"Fannie and Freddie, whose unparalleled political connections helped them to keep regulation toothless and expand on threadbare capital cushions, will no longer be allowed to lobby lawmakers."

It's not much; nevertheless it's a step in the right direction. It's a tragedy however that a severe financial crisis had to happen before action on the problems of incentives in the mortgage system would take place.

It's now on the hands of the next administration to clean up this decades-long mess. This will not be an easy job given the history of obstructionism in Congress.

PS: Mankiw makes a similar point (among others) in this post.

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