A splendid comment on the Fannie/Freddie bail out written by Willem Buiter for FT.com:
I show, first, that even if we wish to keep Fannie and Freddie in their current form, the immediate crisis need not get worse if their shareholders and creditors are treated harshly, thus maintaining incentives for future responsible lending, borrowing and investing. Second, I show that a more efficient and equitable solution is available that ends the institutional obfuscation inherent in Fannie’s and Freddie’s current form: public sector sheep dressed in private sector wolf’s clothing. In 1968, the US federal government privatises a public sector entity, Fannie Mae, that subsidises residential mortgage financing for middle America. In 1970 Freddie Mac is created by the government on the same model as Fannie to turn the de-facto monopoly into a duopoly. The private sector knows that, even though the two GSEs (henceforth F2) are notionally private, with private shareholders and private other sources of finance, their liabilities remain de facto an obligation of the US federal government. Read the rest of it.
