Regulating Fannie and Freddie

[Adrian II]

IMO, you have to separate the issue into two parts. The first part is the usual market thingy, which is completely private.

That's the part I am on about. It can never be completely private, you see.

The 'usual market thingy' is always a carefully constructed institution, ruled by laws set by society and by customs set by the participants themselves. It must be, for without any enforcement of these there would be no market thingy at all. There would be anarchy. This rules and customs thingy is the very principle that allows markets across the world to operate, from Wall Street to the Beijing flea market.

So how exactly do we regulate this market thingy to make it work in the interest of policy goals that society considers necessary or desirable, but without impeding either fairness (i.e. fair competition) or the profit motive of market parties?

My example is clear enough, right? The U.S. government wants affordable housing for people with a minimum income of 'X'. Since the U.S. government does not want to take upon itself the role of mortgage bank, it seeks to regulate financial markets in such a way that mortgage banks wil fulfill this target.

Now this target has obviously not been fulfilled by the U.S. government getting into bed with Fannie (or with Freddie, if you are a Republican) because the result has been fraud, waste, corruption, lack of transparency, or some exotic combination of all of these.

Such wishy washy arrangements just don't work.
To begin with, the favoured companies get preferential treatment, which in itself already impedes healthy competition.
Secondly, these companies are not bound by realistic, measurable targets, but by a vaguely formulated 'mission'.
Thirdly, because they are unduly important both to the government and to the wider financial institutions of the country, these companies get away with incredible lapses of oversight until it is too late to avert disaster.

So that's not the way. 'Regulation' and 'oversight' in themselves are not enough; this has been proven by the F & F deconfiture.

What sort of regulation, and what sort of oversight are needed? This is not just a Socialist issue. Every modern world view from Libertarianism to Catholic Restauration is confronted with it, because every world view presupposes some sort of regulation of economic life, preferably one that works in the interest of their preferred type of society.

P.S. I know this is not going to be a popular thread and most people are probably bored stiff by it. But I would appreciate it if trolling and such were kept to a minimum. So far so good by the way.