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Most noteworthy paragraph in
Hank Paulson's op-ed
, in today’s Washington Post, on what to do about the GSEs:
The GSEs are providing an enormous stimulus to the economy. Placing Fannie and Freddie in conservatorship was, in my view, the most effective of the stimulus efforts undertaken in the past two years. This stimulus was aimed squarely at the driver of our financial and economic crisis: the decline of home prices. Without public support, ensuring that mortgage financing was available during the worst moments of the financial crisis and the ensuing 22 months, the housing market would have ground to a halt, home prices would have spiraled downward, foreclosures would have skyrocketed, and financial institution balance sheets would have suffered greater losses, leading to a prolonged downturn and the loss of millions of additional jobs.
I don’t think I’ve ever seen anyone actually make this point, even though it is blatantly, absolutely true. If Fannie and Freddie hadn’t been around at the depths of the crisis to buy mortgages, everything would have ground to a halt. They’re still playing a vital role in keeping the economy propped up. That’s something the ban-the-GSEs-and-let-the-market-work-its-magic crowd fails to address whenever they get their lather up on the issue. Paulson’s answer is to create utility-like entities, whose rates of return would be fixed so managements don’t go crazy, to buy and insure conforming residential mortgages. I suppose. Free-market types will resist the idea. Then again, if the government is so invested in promoting and subsidizing home ownership (and you don’t even want to try and count the ways how), it can logically play a role in preventing the system from seizing up. . . . No, I'm not crazy about the idea, either. . . .
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