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Guaranteed to Fail by Lawrence J. White, Viral V. Acharya, Stijn van Nieuwerburgh, Matthew Richardson

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HOW TO REFORM A BROKEN SYSTEM

As the housing and mortgage markets recover, the Fed’s support for the GSEs will end, and private capital will return. Fannie and Freddie should not then be allowed to revert to their old form, crowding out private competition and putting taxpayers on the hook for failure while shareholders benefit from success. . . . At a minimum, the GSEs should be restructured to eliminate the systemic risk they posed. An easy way to address this is to shrink them by reducing their investment portfolios—and their huge debt loads. I also believe that their mission should be curtailed significantly to reduce the subsidy for homeownership ...

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