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Politics : GOPwinger Lies/Distortions/Omissions/Perversions of Truth -- Ignore unavailable to you. Want to Upgrade?

To: geode00 who wrote (146841)	11/11/2008 6:43:53 PM
From: TimF	Read Replies (1) \| Respond to of 173976

I am trying to get out why it matters in this case whether Fannie and Freddie were GSEs or private companies in their conception. Private companies facing market discipline, may make the wrong decisions, and in doing so may create big problems, but when the government does so it doesn't face market discipline, and when it bails out the private or semi-private organizations that do so it reduces the market discipline they face. Businesses failing is in many ways a feature more than it is a bug. It lets us know when resources have been used in inefficient or even counterproductive ways, and frees up those resources to be used elsewhere. Private sector decision makers are not inherently or automatically better than the public sector, but they respond to the market, and their organizations can fail if they don't do so wisely. When you have government taking over sections of the market, or controlling players in it, or bailing them out, then you lose this market discipline, and you lose or distort information contained in price signals. "The government distorted the incentives for the private sector" You mean the government took those poor, unsophisticated investment bankers and had them get those poor, unsophisticated PhDs to create incredibly complicated financial instruments in order to gamble on a shaky debt market? Really? When? The government gives preferential treatment to investment in housing leading to an over investment in that area. It makes most gains on owner occupied housing tax free, it allows full deduction of mortgage interest (without allowing most other interest to be deducted on personal income taxes), and it created and backed and pushed the GSEs to expand the market. Also it pushed securitization, but rewarding it with lower capital requirements, and it used regulation, political pressure, and threat of lawsuit, to expand lending to less qualified applicants.