Monday, July 21, 2008

It's time to end the Vietnam War

From the Wall Street Journal's on-line economics blog:

James Surowiecki looks at the status of Fannie Mae and Freddie Mac in the New Yorker:
"The G.S.E.s are curious, because there’s no obvious reason for them to exist in the form they do: instead of creating private companies to do all these jobs, the government could just do them itself. In fact, that’s how Fannie Mae got started, back in 1938: originally, it was a government agency endowed with the authority to buy mortgages, in the hope that this would expand the supply of credit to homeowners. It wasn’t until 1968 that Fannie was privatized. … The main reason for the change was surprisingly mundane: accounting. At the time, Lyndon Johnson was concerned about the effect of the Vietnam War on the federal budget. Making Fannie Mae private moved its liabilities off the government’s books, even if, as the recent crisis made clear, the U.S. was still responsible for those debts. It was a bit like what Enron did thirty years later, when it used ’special-purpose entities’ to move liabilities off its balance sheet."

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