In Which Mr Pollock Is On The Right Track

Alex Pollock is a Distinguished Senior Fellow at the R Street Institute, and he had a suggestion regarding Fannie Mae and Freddie Mack.

The moment Fannie and Freddie have returned to the government cash equal to all the principal and a full 10% annual return [a goal to which F&F are very close], Congress should declare the Treasury’s senior preferred stock as retired,….

Following this, Fannie and Freddie would be very close to the non-government controlled private enterprises they should be.

But then Pollock veered off the track.

…and simultaneously that these companies be treated as systemically important financial institutions.

In a truly free market economy, there is no such thing as a systemically important financial institution; the very concept is a complete non sequitur.

Aside from that, designating these as SIFIs both would keep taxpayers on the hook to bail these institutions out the next time their poor judgment or bad luck straiten them, and it would increase the likelihood of their bankruptcy by reducing risk and thereby removing incentives to behave more cautiously and fiscally responsibly in that free market.

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