by Mark Tebeau | September 8th, 2008
James Surowiecki, in a recent New Yorker, offers a short history of Fannie and Freddie, titled Sponsoring Recklessness: Financial Page: The New Yorker. His title makes the interesting point about the relation between markets and the state. When is private enterprise merely that? And, where does the line for public responsibility for private failure lie. This is a great question. It is worth asking: if the state (federal government) backs private entities, what is their incentive not to take undue risks? Isn’t this sort of act, destined to end in failure? Can we really trust the political system to solve such problems? Would it be better if these entities were truly private or exclusively public?
As a fan of the power of the state, both to regulate markets and to encourage the distribution of wealth (resulting in a more equitable society, with a rich and thriving middle class), the failure of Freddie and Fannie is disturbing.
