Because of their size both Fannie Mae and Freddie Mac know that the government will not allow them to go belly up. It is this that makes them less prudent in accumulating massive amount of debts and assets: the moral hazard at work. But this is not only applicable to Fannie and Freddie, it is also applicable to most large U.S. banks. In fact the entire banking system is built around the ongoing support provided by the Fed’s monetary pumping. So why is Greenspan singling out Fannie and Freddie? [More]
Source link: http://archive.mises.org/1666/who-made-the-fannie-and-freddie-threat/
Who Made the Fannie and Freddie Threat?
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Always to the mark Mr. Shostak. I only would like to add that the italian real estate price situation is very similar. An enormous amount
of credit is supplied from banks to people to buy houses. Everybody want to buy a house, “because
the interest rates are low”. The prices are higher than ever, and are not included in the CPI index calculation…
Always in intellectual debt with you all.
A. Catanzano
Call me a conspiracy theorist, but I have the feeling that the only reason Greenspan was allowed to say explicitly disparaging things about Fannie Mae and Freddie Mac, is that he was directed to set the dialectic stage for a “solution” to the “problem” in the form of a Federal bail-out of these two gigantic GSEs, when Fannie and Freddie are finally faced with the inevitable actualization of their inherent insolvency.
Check your premises. Isn’t that what Ayn Rand said to her protagonists when they encountered inconsistent behaviour in “Atlas Shrugged”. Mr. Greenspan could be the expedient politician acting independently of his ideological roots as M. Rothbard summised. His warnings would then be a case of setting the stage for a big “I told you so” and escape blame. On the other hand, he could be following the script Ms. Rand wrote for him in “Atlas Shrugged” – Fransisco d’Anconia, perhaps. In this role, his warnings would be used to reduce confidence in the system at a vulnerable time of their development.
Crazy? When someone acts inconsistently with their strongly held beliefs, check your premises. How’s that for a conspriracy, Captin Conspiracy?
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