The Fannie and Freddie Fiasco

Sloppy thinkers often confuse support for free-market capitalism with "doing what big business wants."  In fact, the two are often entirely different, as large well-connected companies often thrive through the very fact of government regulation, using the government to step on competitors and create rent-seeking opportunities, while in turn rewarding politicians out of their profits with electoral support.

The Fannie Mae / Freddie Mac fiasco is turning out to be a prime example of such crony capitalism in operation.  These two quasi-private companies enjoyed many special perks (from huge tax breaks to an implicit government guarantee), enriching both themselves and a circle of Wall Street banks while protecting themselves from criticism by waving the "we're helping the little guy" banner.  Leftish Congressmen ranged from platitude spouting dupes to willing participants in the fraud, and helped enable the whole mess.

Paul Gigot, a long-time critic and whistle-blower of Fannie and Freddie has a great, long editorial on these companies and their Congressional enablers.  If the WSJ article is gated, Volokh has a long excerpt.

  • dearieme

    Thanks for the tip; Gigot's article is fascinating.

  • http://www.two--four.net/weblog.php Billy Beck

    It is disgraceful to refer to any of this as "capitalism" in any way.

  • Mesa Econoguy

    The Friends of Angelo et al. certainly made a mess of this.

    And it is more amusing/alarming/discouraging watching these fools try to extricate or simply dissociate themselves from the problem they created. Gigot’s account is fascinating, as there was (and continues to be) likely even more financial shenanigans behind the scenes.

    It is indeed troubling when the market tells you things you don’t want to hear…

  • ccoffer

    "Crony Capitalism" is a euphemism for good old fashioned Fascism. Gigot is spot on when he says it creates monsters. It corrupts absolutely.