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Fannie and Freddie are Back, Bigger and Badder Than Ever

By Bethany McLean

If we can’t do any better, isn’t it time to fix what we have and ease Fannie and Freddie out of conservatorship? The first step is to stop sending all their dividends to the Treasury. That would allow them to start rebuilding capital, eventually to a level substantially higher than what they were allowed to operate with before the crisis. Then, let’s devise a tighter regulatory structure, one that limits the businesses in which Fannie and Freddie can operate, limits the incentives of their management teams to take risk, and limits their ability to lobby. We could cap the returns to shareholders, as utilities do.

Franklin D. Raines, Fannie’s former chief executive, suggests structuring them like mutual insurance companies, which are owned by their policyholders, who would in this case be homeowners, rather than shareholders. A guarantee fund, modeled after the Federal Deposit Insurance Corporation, could support the companies in times of stress as the F.D.I.C. does banks. It would not be perfect. But if the alternative is doing nothing, it’s a whole lot better than that.

Read the full article: Fannie and Freddie are Back, Bigger and Badder Than Ever