The housing bubble shows that public-private partnerships don't always go so well
These days, you hear a lot about public-private partnerships. The government likes the idea of the private sector lending a hand to help it attain its goals, and the private sector likes the boost to profits that government initiatives can provide. But such arrangements aren't always win-win situations. During the housing bubble, a key mistake made by government housing policy was trying to increase homeownership by enlisting private support.
This and a variety of other housing finance policy topics were discussed at an event today put together by the Roosevelt Institute. The first panel discussion sought to investigate the government-sponsored enterprises' role in the crisis. A number of interesting points were made, but one of the sharpest came from financial industry analyst and consultant Joshua Rosner. He's also the co-author of the book "Reckless Endangerment," which examines the culture at the GSEs that helped to create the bubble.
A common problem in economics is when a firm captures its regulator. This is a fancy way of saying that its regulator lets it get away with whatever it wants. With Fannie and Freddie, the situation was different in a key way: they captured Congress. That way, even if a regulator tried to crack down on Fannie, Freddie, or one of the firms it worked with, Fannie and Freddie would appeal to its friends in Congress. Lawmakers would then instead chastise the regulator and tell the GSEs and banks to carry on. For this reason, different regulation might not have helped: if Congress renders a regulator impotent, the rules in place will be ignored anyway.