Economists Fret About Subsidies To Federal Charters by Lew Sichelman
Economists worry. It goes with the territory. If they're not concerned that monetary policy will destroy the economy, then they're fearful that politicians are going overboard with their additions to federal discretionary spending. But in the latest monthly survey of its members by the National Association of Business Economists, their chief anxiety isn't any of those things. It's that the subsidies granted to housing-related government-sponsored enterprises like Fannie Mae and Freddie Mac pose undue risk to the nation's credit markets. Fannie Mae and Freddie Mac are government-chartered institutions which keep money flowing to mortgages by purchasing loans from local lenders and packaging them into securities for sale to investors worldwide. Because of their government connections, they don't pay federal income taxes and are exempt from paying Securities and Exchange Commission filing fees. But most importantly, investors look at them as can't-fail companies that are backed by the full faith and credit of the United States. Fannie and Freddie say that isn't true; that there is no government guarantee. Nevertheless, investors are so sure Uncle Sam will bail them out if necessary that they are willing to park their money in the safety of housing finance at a somewhat lower return. And as a result, the borrowing costs of the two quasi-government agencies are somewhat lower than those of totally private companies. The House Banking Committee, some U.S. Treasury officials, and the Federal Reserve have raised questions about the role of these ongoing subsidies. And now NABE panelists have joined in. Some 60 percent of the business economists queried worry that the subsidies pose a risk to the current economic expansion. That's more than the 27 percent who believe a labor shortage and poor education pose a problem to the economy. Or the 22 percent who dread the stock market bubble will burst. NABE panelists also questioned the continued role of the government in the home loan market. Nearly 38 percent of our respondents thought the subsidies should be eliminated entirely. A further 28 percent thought the subsidies should be continued, but the enterprises should be restricted from entering into new markets. About 20 percent thought current policy should remain unchanged, while 9 percent were in favor of expanding the role of the enterprises to cover more low-income housing. Would curtailing the role of the GSEs hurt the housing market, as Fannie Mae and Freddie Mac have claimed? A slight majority (53 percent) thought not. They either believed that the market would adjust or that housing no longer needed a subsidy. Just over 42 percent thought either housing prices would go up or mortgage market liquidity would go down or both if GSEs were reined in. | 
