Wednesday, July 16, 2008

Sanity on Freddie and Fannie

Krugman has been relatively sane in regards to the Freddie/Fannie situation (in comparison to say, Robert Reich). Today, Krugman notes that Freddie and Fannie may have been picking up the slack left from the Savings and Loan meltdown of the 80s:
Now here’s the thing: S&Ls are private, profit-making institutions whose debt (in the form of deposits) is guaranteed by the federal government. Fannie and Freddie are private, profit-making institutions whose debt is implicitly guaranteed by the federal government. It’s not clear to me that the switch shown here led to any net socialization of risk.
I am not going to pretend that I understand all the mechanics of the current housing/financial crisis. I am following along as best I can, and it is certainly something that gets discussed quite a bit in my MBA classes. Being dumb enough to keep a running tally of my thoughts on a blog certainly doesn't make me an expert in any of the stuff I talk about.

That being said, at present I lean toward Krugman's take that Freddie and Fannie freakout is overblown and is not the result of corruption or an exploitation of their implied government guarantees.

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