Shadow Panel: Liquidate Fannie and Freddie

Fannie Mae and Freddie Mac should be liquidated, according to the Shadow Financial Regulatory Committee, which has warned since 1990 of risks posed by the two government-sponsored enterprises. The panel, sponsored by the Washington-based American Enterprise Institute, said in a Sept. 15 statement that there are only three "plausible" options after the housing market has stabilized: nationalization, privatization, and liquidation. "Continuation in GSE status should not be an option," the panel said. Nationalization is unnecessary because the private sector is "fully capable" of providing more efficient means of mortgage financing, the panel said. Privatization "could be a sensible course," the committee said, but expressed concern that "in light of the history of these companies, and particularly if they are privatized as large entities, they would still be considered too big to fail or otherwise government-backed." Privatizing them as smaller units "would reduce their sale value for the taxpayers ... and still not prevent them from recombining in the future," the panel said. Liquidation is "the most promising course" because it allows taxpayers "to benefit from whatever value remains in the companies, but minimizes the risk of continuing government involvement with their activities," the committee declared. The committee's statements can be found online at http://www.aei.org/research/shadow.