The On The Housing Market Essay

1336 Words Dec 7th, 2016 6 Pages
Reforming the Housing Market
Today, because of the way congress has structured GSEs Fannie Mae and Freddie Mac undermine market discipline and actualize reverse incentives, leading to immoral behavior by market participants. The promise of market discipline is its ability to identify risk and deters immoral behavior. The 2008 financial crisis was induced by the dissolution of market discipline and rampant immoral behavior. Thus, to safeguard against another financial crisis congress should address moral hazard and restore market discipline. The first recommendation is to reduce and limit the size of Fannie Mae and Freddie Mac. Which would allow open competition in the mortgage industry and enable the market to decide the best investments. The second recommendation is to impose stricter reporting and accounting regulations to improve transparency and disclosure of GSEs’ activities and financial position. Transparency of information will allow investors to have more relevant information and giving them the ability to identify risk in a timely manner.

Addressing Transparency and Disclosure of GSEs
Government’s backing of Fannie Mae and Freddie Mac has enabled these corporations to engage in more risk than necessary. During 2003, Fannie Mae and Freddie Mac had a combined outstanding debt that was equaled 39 percent of the total outstanding U.S. public debt (Thomas, 2008, p. 1). GSEs misuse resources by implementing risky investment strategies and taking on excessive risk that…

More about The On The Housing Market Essay

Open Document