Comments on “Where Do We Go from Here?”

Abstract

I would like to touch briefly on two issues in answer to the question posed for this session: first, the integration of housing finance into the financial and regulatory mainstream; and second, the need to modernize budgetary and regulatory accounting. I have chosen these topics for several reasons. They are important, they get less attention than is deserved, and I have thought quite a bit about them from both an academic and policy perspective. For those of us who have long worried about Fannie Mae and Freddie Mac — in particular, their spectacular political and market power, their lack of transparency, and the costs and risks to taxpayers associated with their implicit guarantee — the crisis has opened up the tantalizing possibility of rationalizing the structure and regulation of housing finance. Yet, although it is widely agreed that the housing bubble precipitated the financial crisis and that Fannie and Freddie posed a serious systemic risk as “too big to fail” institutions, there is still no official, articulated vision for how housing finance will be structured and regulated in the future. When these issues are mentioned at all, it is usually outside of the broader context of any regulatory restructuring of banking and financial markets. The omission can be seen, for instance, in a series of Treasury proposals for restructuring the financial system — both under the previous