"Ed Huntress" wrote in message
...

"Ignoramus30183" wrote in message
...
On 2008-07-16, John R. Carroll jcarroll@ubu wrote:
Ignoramus30183 wrote:
On 2008-07-16, Larry Jaques novalidaddress@di wrote:
On Tue, 15 Jul 2008 20:18:57 -0500, with neither quill nor qualm,
Ignoramus19502 quickly quoth:

On 2008-07-15, John R. Carroll jcarroll@ubu wrote:

You know reconditioning well Chudov but apparently not finance.

I have a Master of business administration degree in finance from
University of Chicago. Which is admittedly not that much, but at
least I studied it a little bit.

Well, at least you gave it up for something more real and honest:
hawking wares on eBay and doing new/used metalworking.


That's not my day job,

Well you are very good at it.



Thanks John. I respect your opinions, experience etc. But at the same
time I also think that these GSEs created an enormous market
distortion and should be phased out (at least as "government
sponsored" entities).

If the value of mortgages decliness further, and if the government
steps in and assumes guarantees given by Freddie and Fannie, this
could potentially expose it to very large liabilities.

Which brings us to the question that always arises when there is a
proposal
to privatize some large government entity, or quasi-government entity like
these two: Why were they created in the first place, and what would have
happened without them?

The role of government encouragement for home ownership in our society
often
is underestimated. In general (and I haven't studied Freddie and Fannie
for
decades, so I'm not being specific here) they're created because the
market
isn't producing some desired result. Home ownership has been a desired
result for a long time, and anyone who thinks the market would have
emerged
to deal with the relatively low rates of ownership doesn't know the
history
of it. In the "free" market, down payments and interest rates were too
high,
largely because risk exposure was too large. And the "free" market had
created a number of non-equity payment schemes, such as the infamous "land
contract," which destabilized the whole system when there was an economic
downturn. Freddie and Fannie made it possible for more people to buy
houses
and they stabilized the system, having enabled the general use of
mortgages
that accrued equity for the homeowners even as the loans were being paid
off.

The upshot is that these two entities maybe -- probably -- created more
wealth and more stability in our economy, not to mention the enormous
fallout of economic activity from home building, than any damage their
troubles are likely to cause. In other words, be careful what you wish
for.

--
Ed Huntress


Any government created agency or organization can and every now and then
does wind up failing. These two quasi governmental organizations; which were
created because of a need the free market failed to provide, have been
around a long time and are responsible for creating the secondary market in
mortgages. This has been a boon for the whole country. Now they are in
trouble. They can and will eventually be fixed or closed down and something
better will replace them. So there is a down side to this kind of
organization. But privatization has a much greater risk, namely, bankruptcy.
If these were private companies they would simply go bankrupt and cause huge
problems. That is the main difference between government and private.
Private can simply close the doors and stop doing business if they screw
things up. Everyone involved with the business pays the price. The job of
these GSEs is too important to leave in the hands of businesses who will
just close up if they make a mess of things. Some things are best done by
government. I think this is one of them.

Hawke