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Seems that Heritage Foundation got it right.
June 20, 2005
Time to Reform Fannie Mae and Freddie Mac
A better and more effective alternative is to phase out their generous federal credit privileges, allowing these financial giants time to adjust to a more competitive environment. To implement this orderly withdrawal of federal support, Congress should:
*
Phase out Fannie Mae’s and Freddie Mac’s lines of credit with the U.S. Treasury over five years in annual increments of $500 million for each government-sponsored enterprise (GSE),
*
Eliminate immediately the Federal Reserve’s authority to buy their debt, and
*
Eliminate the GSEs’ exemption from state and local income taxes.
As the phaseout proceeds, Fannie Mae and Freddie Mac should:
*
Conduct an orderly reduction in their holdings of residential mortgages (the profits from these investments depend largely on their ability to borrow at subsidized rates) and
*
Concentrate their skilled workforces on securitizing residential mortgages in fair and open competition with the private sector.
These legislative changes would greatly reduce the risk to financial markets and taxpayer exposure. They would also restore competition in residential mortgage markets while leaving the housing industry and homeownership opportunities unaffected.
A better and more effective alternative is to phase out their generous federal credit privileges, allowing these financial giants time to adjust to a more competitive environment. To implement this orderly withdrawal of federal support, Congress should:
*
Phase out Fannie Mae’s and Freddie Mac’s lines of credit with the U.S. Treasury over five years in annual increments of $500 million for each government-sponsored enterprise (GSE),
*
Eliminate immediately the Federal Reserve’s authority to buy their debt, and
*
Eliminate the GSEs’ exemption from state and local income taxes.
As the phaseout proceeds, Fannie Mae and Freddie Mac should:
*
Conduct an orderly reduction in their holdings of residential mortgages (the profits from these investments depend largely on their ability to borrow at subsidized rates) and
*
Concentrate their skilled workforces on securitizing residential mortgages in fair and open competition with the private sector.
These legislative changes would greatly reduce the risk to financial markets and taxpayer exposure. They would also restore competition in residential mortgage markets while leaving the housing industry and homeownership opportunities unaffected.
.. 
It wouldn't have prevented the financial meltdown.
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