Unfortunately, GSEs have the potential to cripple the integrity of the federal fiscal system if their expansion is not checked. Like the proverbial camel’s nose, once under the edge of the tent they have come to occupy an ever‐larger place in our financial system and to determine the allocation of an ever‐larger portion of our national wealth. This study examines the GSE as an institution, discusses the general manner in which its operations impose unrecognized costs on the taxpayer, estimates the magnitude of that cost in the case of the Federal Home Loan Mortgage Corporation, and presents a proposal for managing the burden in the future.
The Burden of Government‐Sponsored Enterprises: The Case of the Federal Home Loan Mortgage Corporation
Government‐sponsored enterprises (GSEs) are private corporations that operate under congressional charter. They are the epitome of good intentions gone awry. All have been created to serve functions that, on the surface, are quite worthy. Few would object to improving access to services such as housing, education, and agricultural credit. Those are three of the most sacred cows of our public finances, and few members of Congress would vote against them.
