Nice try from some guest writers, but typical of "ivory tower" thinking. Misses the big picture; the two GSE's have subsidised the banking industry by removing market risks and replacing them with an implicit government guarantee. It also misses the point of the "emperors new clothes" aspectof the rescue, these two GSE's can issue an unlimited amount of their own debt and get the Fed to replace it with Government paper. Let's leave aside the fact that the article is factually incorrect in that GSE's bought sub-prime portfolios, bundled to be AAA, but how about some intelligent thinking about how much of sub-prime lending was forced on the private sector because these dinosaurs of "free market meddling" crowded out main street ... More »

Fannie and Freddie have been ticking time bombs since the late 1980s. As Government Sponsored Enterprises, (GSEs) they could borrow money at the lowest cost the Fed provides, buy mortgages with that money, bundle them up into securities and sell them on Wall Street raking in enormous profits. The implied government guarantee erased any investor fears of default. Many warned that sooner or later something will occur that will call the government's bluff on that and taxpayers will end up on the hook. And now it's happened.