Would such regulatory reform change risk taking by financial firms?
A. It depends upon what you think is the real problem with the system. You could easily start with a different hypothesis: That we have the right agencies, but they were asleep on the job. It’s not a question of more or fewer agencies; it’s making sure that the agencies are doing their job in regulating financial stability and leverage in the system. We would also posit that the more agencies government creates, the more critical it becomes that communication and coordination between agencies is maintained. Q. The U.S. government arguably is the mortgage market today, making it an interesting case study of state capitalism. How long should the government stay so involved, and what should be done with Fannie and Freddie? A. Fannie and Freddie have fulfilled two purposes. One is that they have behaved like banks: They issue liabilities, they buy mortgages, and they hold those mortgages on their balance sheet. But because they have had an implicit (now nearly explicit) support from the U.
