Questions on Fannie and Freddie Have Separate Answers

"Fannie-Freddie Overhaul Might Mint Hedge Fund Riches, Or Losses," is the headline here, which seems about right. One thing that I have mentioned about the future of Fannie Mae and Freddie Mac is that it involves two unrelated questions, which are:

Both of those are hard questions! The first implicates difficult issues of market design and housing policy and systemically important financial institutions. The second is difficult because, when the government originally bailed out Fannie and Freddie in 2008, it did not fully nationalize them and left some stock in the hands of private holders -- and then later, when Fannie and Freddie were getting back on their feet, the government unilaterally changed the terms of the deal to zero the private shareholders. This was arguably unfair to them, though arguably it would have been perfectly fair to zero them initially. (Also, of course, a lot of the current Fannie and Freddie shareholders are hedge funds who bought it well after the bailouts for pennies on the dollar.)