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The Economists' VoiceTop Economists Take On Today's Problems$
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Joseph Stiglitz, Aaron Edlin, and J. Bradford DeLong

Print publication date: 2011

Print ISBN-13: 9780231143653

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231143653.001.0001

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PRINTED FROM COLUMBIA SCHOLARSHIP ONLINE (www.columbia.universitypressscholarship.com). (c) Copyright University of Minnesota Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CUPSO for personal use.date: 19 September 2021

What to Do About Fannie and Freddie?

What to Do About Fannie and Freddie?

(p.296) Chapter 35 What to Do About Fannie and Freddie?
The Economists' Voice

Edward L. Glaeser

Dwight M. Jaffee

Columbia University Press

This chapter focuses on the difficulties of the two government-backed bodies, Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). Both securitize mortgages—they buy lenders' mortgage books and package them up into securities, which spread the risks of the individual loans, to sell on to investors. They do so with an implicit government guarantee. But both have used that government guarantee to borrow cheaply themselves and make a higher return by investing in riskier assets. If either fails, the bill will fall to taxpayers. The chapter argues the government should charge the agencies in the form of a tax for the risks they are imposing on taxpayers. The subprime mortgage crisis in the summer of 2007 may add weight to this view.

Keywords:   Fannie Mae, Federal National Mortgage Association, Freddie Mac, Federal Home Loan Mortgage Corporation, mortgage securitization, subprime mortgage crisis, taxation

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