Read Dr. Darby’s assessment of the recent collapse and how it is tied to legislation that ignores the risks of moral hazard and, instead respresents politically popular causes that impose hidden taxes. It was published in the Washington Times on September 30, 2008 at
Complex events never have single causes or simple fixes. A case in point is the collapse of Fannie Mae and Freddie Mac, two institutions that uniquely blended private incentives associated with Wall Street with public privilege granted by Congress. Rep. Ed Royce (“Inevitable Collapse,” Op-Ed, Friday) correctly called attention to the role of Congress and the danger signs members ignored for more than a decade on grounds of promoting affordable housing. Fannie and Freddie generated private values for investors (and well-connected managers) as well as political values for their supporters. Neither can avoid responsibility.
More important, dual accountability for the collapse must be reflected in any remedial actions. Congress chose to ignore the risks from moral hazard and the unavoidable costs of outrageous leverage on the companies’ balance sheets. Apologists who took credit for the benefits look to blame others by averring: “The private sector got us into this mess. The government has to get us out of it.” Intelligent consumers and voters know better. If Congress does not recognize its role in the debacle, it forfeits any reasonable claim to support for remedial action. Mr. Royce might well have quoted George Santayana, who famously proclaimed that those who ignore history are destined to repeat it. So it is here. Hidden subsidies for politically popular causes impose hidden taxes on us all. Think about Congress’ share of $700 billion.
LARRY F. DARBY
American Consumer Institute