I rarely find myself in complete agreement with Professor Stiglitz, but his column in the Financial Times is right on. While I agree that Fannie and Freddie are too big to fail, there is a solution that does not involve the socialization of the risk and loss while management and shareholders get to privatize the profits.
Steve Forbes also has a great idea that involves breaking up the giants into 10-12 smaller companies. I believe that is also a very workable solution. If the combined debt is divided up, the divides the risk into manageable pieces and eliminates the moral hazard of having the tax payer fund the downside. New companies also mean new management. The crooks the lead these two entities now have to be thrown out along with all their cronies. This recapitalisation will certainly lead to massive shareholder losses, but at least the tax payer will not be responsible.
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