It's Clear: America Doesn't Need Government Sponsored Businesses

The article titled "America Does Not Need Government-Sponsored Businesses" by Norbert Michel, published on Forbes on June 18, 2025, presents a critical examination of the role and impact of government-sponsored enterprises (GSEs) in the United States. Michel argues that these entities, which include giants like Fannie Mae and Freddie Mac, are not only unnecessary but also detrimental to the economy and the principles of free market capitalism. The article delves into the history, operations, and consequences of GSEs, offering a comprehensive critique and proposing alternatives that align more closely with market-driven solutions.

Michel begins by tracing the origins of GSEs, noting that they were established to facilitate homeownership and provide liquidity to the mortgage market. However, he contends that over time, these entities have morphed into behemoths that distort the market, create systemic risks, and unfairly compete with private sector firms. The author highlights the 2008 financial crisis as a prime example of the dangers posed by GSEs, arguing that their involvement in the housing market contributed significantly to the crisis. He points out that the implicit government guarantee enjoyed by GSEs allowed them to take on excessive risk, leading to a housing bubble and subsequent collapse.

The article then shifts focus to the operational aspects of GSEs, particularly Fannie Mae and Freddie Mac. Michel explains that these entities purchase mortgages from lenders, package them into securities, and sell them to investors, thereby providing liquidity to the mortgage market. However, he argues that this process is fraught with problems. The government's implicit backing allows GSEs to borrow at lower rates than private firms, giving them an unfair advantage and crowding out private sector competition. Moreover, Michel asserts that the GSEs' focus on meeting affordable housing goals often leads to the purchase of riskier loans, further exacerbating market distortions.

Michel also critiques the regulatory framework surrounding GSEs, arguing that it is inadequate and ineffective. He points out that despite being under conservatorship since 2008, Fannie Mae and Freddie Mac continue to operate with significant government support, raising questions about the true extent of their privatization. The author argues that the current regulatory structure fails to hold GSEs accountable for their actions, allowing them to continue engaging in risky behavior without facing the full consequences.

The article then delves into the economic implications of GSEs, asserting that their presence leads to market inefficiencies and misallocation of resources. Michel argues that the government's involvement in the mortgage market through GSEs distorts interest rates, housing prices, and credit allocation, ultimately harming consumers and taxpayers. He contends that the subsidies provided to GSEs are essentially a hidden tax on the public, as they increase the national debt and expose taxpayers to potential bailouts.

In addition to the economic arguments, Michel also touches on the political dimensions of GSEs. He argues that these entities have become deeply entrenched in the political system, with powerful lobbying groups and significant influence over policymakers. This, he contends, makes it difficult to reform or dismantle GSEs, as they have become a fixture of the political landscape. Michel criticizes the revolving door between GSEs and government agencies, arguing that it leads to regulatory capture and further entrenches the status quo.

The article then proposes alternatives to the current GSE model, advocating for a more market-driven approach to the mortgage market. Michel suggests that private sector firms should be allowed to compete on a level playing field, without the distortions caused by government-backed entities. He argues that this would lead to a more efficient and stable housing finance system, as private firms would be more accountable to market forces and less likely to engage in risky behavior. Michel also proposes the gradual wind-down of GSEs, with their functions being taken over by private sector firms over time.

In conclusion, Michel emphasizes that America does not need government-sponsored businesses like Fannie Mae and Freddie Mac. He argues that these entities are relics of a bygone era, ill-suited to the modern economy and detrimental to the principles of free market capitalism. The author calls for a reevaluation of the role of government in the mortgage market, advocating for a shift towards market-driven solutions that prioritize efficiency, accountability, and consumer choice.

Overall, the article presents a comprehensive and critical analysis of GSEs, drawing on historical, operational, economic, and political arguments to make its case. Michel's critique is thorough and well-reasoned, offering a compelling argument for the need to reform the housing finance system and move away from government-sponsored businesses. The article serves as a call to action for policymakers, urging them to consider the long-term implications of GSEs and explore alternatives that align more closely with the principles of a free market economy.

Read the Full Forbes Article at:
https://www.forbes.com/sites/norbertmichel/2025/06/18/america-does-not-need-government-sponsored-businesses/