Although Fannie Maecut its dividend by 30 cents, taxpayers shouldn't be forced to protect shareholders of government-sponsored enterprises, said Joseph Stiglitz, a Nobel Prize winning economist.
"If there is a threat of a lack of liquidity in the firm, why are they still paying dividends at all?" he said. "It seems to me that we passed legislation giving them the right to borrow from us, and now they’re taking out money while we’re potentially putting money in." (For his full interview on Fannie and Freddie, see video at left.)
Instead, Fannie and fellow mortgage lender Freddie Mac should have reworked their corporate organization in a way that didn’t protect management, shareholders or creditors, which defeats the accountability of the market system, he said.
"You take the risks and you get the upside, but you also get the downside," he said. "The potential liability we undertook when we wrote, passed that bill with that blank check, we just don’t know."
Stiglitz thinks the housing crisis is about halfway through its downturn, but said the credit crisis, which he referred to as "L-shaped", is not as far along. (To hear more about the credit crunch, see video below.)
Further, although exports have kept the country’s gross domestic product numbers afloat, a slowing global economy will likely hurt this upside.
"These people who are supposed to be assessing risk managing risk have repeatedly failed," he said. "Why should we have any confidence that they know how to fix the system?"