Fannie Mae and Freddie Mac were probably the world’s most heavily supervised financial institutions, subject to a specialist agency, the Office of Federal Housing Enterprise Oversight. The office employed 236 people at the time of its last annual report. OFHEO did not fail because it was understaffed or not well informed about Fannie Mae’s activities, but because it lacked authority. The entire staff earned less in aggregate than Franklin Raines, the aggressive chief executive who masterminded Fannie’s expansion.
Like Martin Wolf, I yearn for a world in which regulators would moderate the inherent instability of the financial system. But my yearning is tempered by modest expectations of what regulation can achieve. Martin’s realism, which I share, acknowledges that public expectations are much higher and politicians will claim to respond to these expectations. But the politicians will fail. The next financial crisis will be different in origin and the rules that will be introduced to close the doors of today’s empty stables will prove irrelevant.
See full Article (paid subscription required).
Posts
