A Guaranteed Disaster — The American Magazine

In summary, then, the notion that the government should insure mortgages or mortgage-backed securities because eventually it will do so anyway seems deeply flawed. If that’s the standard, the government should be guaranteeing the liabilities of auto companies and nonbank financial institutions like AIG. The circumstances under which the government might step in to rescue the housing finance system are not even clear; in fact, the only time the government has had to rescue that system was when the government had already been backing some of the participating institutions. The S&Ls, Fannie, and Freddie come to mind. Finally, the whole idea rests on the assumption that the government will be adequately compensated for the risks it will be taking, and this—given the history of government insurance programs—is an obvious fantasy.

via A Guaranteed Disaster — The American Magazine.

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