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Fannie Mae and Freddie Mac must go

We tried privatizing them before, in 1968. It didn't work.

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At the time, it was perhaps the biggest bailout in US history. Today, one month later, the federal takeover of mortgage giants Fannie Mae and Freddie Mac has been all but forgotten in the drama of the global credit crunch.

Washington careened off to pass a bigger bailout before a clear plan emerged about Fannie's and Freddie's future. The uncertain cost of their conservatorship is sobering enough, but a more subtly troubling matter is what to do with them after things settle down. There are several options, but history gives a clear warning: Nationalization of industry is easy; privatization is hard.

Some say that this is uncharted territory, but that's flat wrong. Washington has tried to privatize Fannie Mae before. In 1968, Fannie was a government agency that had been serving to inject liquidity in the housing market for 30 years, but finally President Johnson signed legislation ordering it out of the governmental garden. Easier said than done, as it turns out.

Fannie was given a new corporate charter and soon after, in a slight twist on Genesis, a manly mate for company, Freddie Mac. It was hoped that the two firms would propagate a new, competitive secondary mortgage market outside of Eden.

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