Deprivatization

Deprivatization

I wish people wouldn’t say that Fannie and Freddie have been “nationalized.” I mean, it’s basically accurate, but it conveys the wrong impression.

The fact is that Fannie Mae was originally a government agency; it was privatized in 1968, not for any good economic reason, but to move its debt off the federal balance sheet (and Freddie was created 2 years later as a competitor.) Private ownership of Fannie and Freddie never made any real sense, and was always a crisis waiting to happen.

So what we’re really seeing now is deprivatization. It’s not something like the UK government seizing the steel mills; it’s more like firing Blackwater and giving responsibility for diplomatic security back to the Marines.

Deprivatization – Paul Krugman – Op-Ed Columnist – New York Times Blog.

Now there is a word I could learn to love…Deprivatization, may the movement grow and grow. Yea, Jim, another chance to berate me about my liberal views…

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One thought on “Deprivatization”

  1. Gary, glad you survived Ike. I was in NC during Fran, so I know a little of what you are going through. Best of luck recovering and getting back to normal.

    Regarding nationalization of institutions, I’m against it. Surprise, surprise (remember Gomer Pyle?). Basically, Freddie/Fannie were never really private as they had credit lines from the Treasury and government mandates to buy garbage when they didn’t need it leading to taking on more risk than they would had they been truly private.

    What could have deterred this crisis? More expansive capital requirements for bank loans on and off the books, and better risk managment such as subprime, and no-doc ceilings and stress testing credit and liquidity crises. Better regulatory oversight from the OTS, and better monetary policy following the equity bubble of 90’s. Lastly, the SEC should not have so carelessly approved exceptions to its financial innovation guidelines.

    The bailout of AIG is disturbing, but I don’t know if the citizens are better off from it or not. Perhaps the biggest news is today’s establishment of the government’s bad debt entity. This is extremely similar to the Resolution Trust Corporation set up to handle the S&L crisis of the 80’s. Simply amazing, and I guess this happens when the people who were involved in previous scandals/muck ups are either dead or retired. Otherwise, how can you repeat it?

    Many will try and blame one party or the other. It should give the Dems a boost based on perceptions rather than sound judgement, but that is politics.

    PS I didn’t know the Marines were diplomatic?

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