Monday, September 08, 2008

"The Bush administration seized control of the nation’s two largest mortgage finance companies on Sunday..."

It was either this or a friendlier bail-out that would created a much worse moral hazard in the future.

"Alan Greenspan, the former Federal Reserve chairman, and Lawrence H. Summers, a Treasury secretary under President Bill Clinton, along with many other critics, have long maintained that the companies were too powerful politically and financially, and that their huge portfolios posed enormous risks to the financial system."

What other American institutions are too big to fail? For such institutions, our typical options are Bell-style break-up (if we act early), heavy government regulation, and ever recurring bail-outs. (For example, I worry a little about the future whenever I read about defense contractors merging. I haven't read about one of these mergers in a while, but after our presence in Iraq decreases significantly, I won't be surprised to read about these again.)


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