By Arnold Kling
Federal Reserve Chairman Alan Greenspan tries taking on some sacred cows. In a logical assessment of the Social Security’s future financial condition, he suggested ways to curtail the growth in future benefits. The response was predictable
Sen. Arlen Specter, R-Pa., called the suggestion ”outrageous, insipid, preposterous” and ”the worst idea I ever heard of.”
On another topic, Greenspan argued that two large mortgage holders, Freddie Mac and Fannie Mae, pose a threat to financial stability.
In addition to capping debt growth at the two institutions, Greenspan suggested the two companies should be more focused on their core responsibilities, buying home mortgages from local lenders and repackaging them as mortgage-backed securities that can be traded rather than branching them out into other types of loan activities.
As a shareholder and former employee of Freddie Mac, I have my thoughts on this issue, but I do not want to go on at length. I would just say that, as with Social Security, Mr. Greenspan has a view that seems to me to be wise and balanced.
For Discussion. What background papers would you recommend on the issue Freddie Mac, Fannie Mae, and the U.S. housing finance system?