Should Fannie and Freddie be privatized?

• Position: National Affairs

Calling for the privatization of Fannie Mae and Freddie Mac, a report from the Cato Institute, Washington, D.C., contends that housing is plentiful and that the Federal government need not be in the business of promoting homeownership. Further, given Fannie's status as a government-sponsored enterprise (GSE), taxpayers may be on the hook in the event of a financial crisis, despite the fact that the government does not formally guarantee Fannie securities.

"Fannie Mae, Freddie Mac, and Housing Finance: Why True Privatization Is Good Public Policy" calls for the GSEs to cut their ties with the Federal government and operate like normal corporations. New York University economist Lawrence J. White, a former Freddie Mac board member, argues that full privatization will help avoid a taxpayer bailout in the future.

"The special governmental links that apply to Fannie Mae and Freddie Mac yield little that is socially beneficial, while creating significant potential social costs," White insists. The best way to cut down on those costs and risks is privatization. "This would imply that the two companies would no longer enjoy...