Thursday, September 11, 2008

A lesson from Milton Friedman

The lessons of the Fannie and Freddie bailout are going to be very expensive for Americans. When a corporation is singled out by government for special favors and incentives in the name of the public good, in the case of Fannie and Freddie it was housing for the masses, the situation quickly becomes prey to crony-capitalism. Here is a clip from Milton Friedman on this very subject.

HT: Liberty Pen


tashabud said...

What do you think will happen to our country's overall economy if the government didn't and will not step in to salvage Fannie Mae and Freddie Mac?

To my non-economist knowledge, I thought that this move by the government is to help prevent a further down spiraling of our already weak and depressed economy. I know that it will get us in our pockets, but what would be the downfall if the government do nothing? What's your take, VH?

VH said...

You are correct. If Fannie and Freddie wouldn’t be bailed out by the government, there would be serious consequences to our financial system. However, my point is that both GSE’s should have been severed from using the federal government as a backstop long ago. Fannie and Freddie enjoy privileges that no other corporation dealing in housing enjoyed: They're exempt from state and local taxes and they enjoy special tax and regulatory privileges unavailable to other publicly traded corporations. Because Fannie and Freddie had a privileged position in the market, they essentially dominated their industry. And they still ended up screwing up their business.

Now that the feds (via the taxpayer) will bailout Fannie and Freddie, they should be broken up and sold to private companies and therefore alleviating some of the taxpayer burden. In the future, Americans should be very weary of a politician that wants to create a program to remedy any perceived societal problem. It may end up costing us a bundle.

Thanks for your comment, Tasha. I hope all is well with you.

tashabud said...

Thanks for taking the time to respond to my inquiry. So, who ever introduced the Government Subsidy Exemptions bill in the first place? I take that that's what GSE, you mentioned, stands for?

All is well with me and my family so far. But I'm missing your visits at my blogs. LOL.
Good night.

VH said...

GSE stands for Government Sponsored Enterprise Fannie was created in 1938--Freddie in 1970 by congress.
Sorry about the lack of visits, I've been so busy lately that I haven't been able to make my usual rounds. I'll be back on schedule soon. Thanks again.

tashabud said...

Ha,ha,ha! Vh, I really got that one all wrong, eh? Thanks so much for clarifying that one up for me. I guess my version doesn't even exist! But what a clever one I came up with all by myself. Hehe.
This is one of the advantages of blogging, I get to learn about politics, economics, arts, music, people, places, and animals. Thanks for the great lesson in economics 101? Good night.