Thursday, November 6, 2008

"Democrats will be too tempted to revive the hybrid model because it provides funds for key policy goals."

I'm growing fonder of Lawrence Summers. I liked his stimulus proposals, and on Fannie and Freddie he talks sense, as well as about implicit government guarantees and hybrid government creations:

"President-elect Barack Obama has said little about his plans for Fannie Mae and Freddie Mac, but a top adviser and contender to Treasury Secretary already has a plan to break up the companies.
[Lawrence Summers]
Summers

Lawrence Summers, Treasury Secretary at the end of the Clinton administration, believes the firms should be divided into their “government” and “private” functions after the financial crisis subsides. The private-sector components should then be sold off in many pieces, with the proceeds used to fund government affordable housing programs.

“With this approach, the government would be in a position to support the housing market in the years ahead without encouraging dubious financial practices or denying financial reality, as is the case today,” Summers argued in in July.

He laid out his vision in twin editorials in the The Financial Times and The Washington Post that were striking for their prescience about the firms’ fate. If market confidence in the companies does not improve, he said the government should throw them into receivership and run them as public corporations “for several years.” Just weeks later, the firms were seized jointly by Treasury and their regulator."

Here's my comment:

“In a 2007 Financial Times editorial, Summers counted himself as “among the many with serious doubts about the wisdom” of the firms’ implicit government guarantees.”

His understanding that these implicit government guarantees are a major problem recommends him to me.

“Summers believes the firms’ public-private business model should be scrapped. “These fuzzy line arrangements…have shown themselves to be deeply suspect,” he told the House Budget Committee days after the companies’ seizure. “I think we’ll have to move beyond that. We need to move beyond the ‘heads I win, tails the public loses’ model in which we’ve operated.”

Absolutely. These hybrid arrangements are trouble. Scrap them.

Comment by Don the libertarian Democrat - November 6, 2008 at 10:12 pm

No comments: