March 6, 2013, 6:23 p.m. ET
In September 2008, amid the financial panic and collapse of the housing market, the federal government bailed out and took control of Fannie Mae FNMA +1.67% and Freddie Mac, FMCC +0.26% two government-sponsored enterprises that dominated the mortgage market. After four years and $180 billion of taxpayer funds to keep them afloat, they are beginning to make profits from their near monopoly. This week, the head of the federal agency that supervises Fannie and Freddie, Edward DeMarco, outlined a sensible plan that would prepare the companies—which remain the dominant players in housing finance—for either full privatization or government ownership.
These are the obvious alternatives, but there is a third idea in the mix, one that is as seductive as it is dangerous: a private system but with an explicit government mechanism for future bailouts when they prove necessary. The rationale? If there's a problem in housing finance, the government will inevitably step in as it did in 2008. So why not create a government insurance program now, compensating taxpayers for the burdens they will have to shoulder eventually anyway? To Read More….
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