Magazine April 20, 2009, Issue

The Least-Bad Option

Economic experts Luigi Zingales (L-R) of the University of Chicago, Robert Wescott of Keybridge Research LLC, Gregory Smith of the Colorado Public Employees’ Retirement Association, and Peter Wallison of the American Enterprise Institute testified at a Committee hearing on Capitol Hill in Washington, D.C., October 6, 2008. (Jonathan Ernst/Reuters )
Under current conditions, government seizure of shaky firms may be a necessary evil

Peter Wallison speaks with the confidence of a man who has a track record of making accurate predictions. Ten years ago, when Fannie Mae decided to loosen its underwriting standards and jump into the subprime-mortgage market, Wallison accurately observed that Fannie’s excessive risk-taking was a function of its implicit government backing. “If they fail,” he told the New York Times, “the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

Having watched the disaster he predicted unfold, Wallison is understandably upset that policymakers appear to have learned nothing from

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