IN THIS week's print edition, we explore how mortgage subsidies have encouraged banks to lend more to homeowners and less to firms, with pernicious economic consequences. The Economist has long been a critic of such handouts. Back in 2000, we pointed out that implicit state guarantees for Fannie Mae and Freddie Mac, mortgage insurance giants, may do serious damage to the American economy if they take on too much risk. The federal nationalisation of the two firms in September 2008 as a result of the subprime mortgage crisis suggests we were right to be worried.
Fannie, Freddie and Uncle Sam
America’s government should get out of the mortgage business
Apr 15th 2000
FANNIE and Freddie sound like a sweet couple living down the street. But in America they are more liely to own the mortgage on your and your nieghbours’ house. For Fannie Mae and Freddie Mac are two of America’s biggest financial institutions—and also two of its most indebted, with around $1 trillion of debt between them. Fannie Mae is the Federal National Mortgage Association, Freddie Mac the Federal Home Loan Mortgage Corporation. They dominate America’s mortgage market, a...Continue reading
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