This is the Cato Daily Podcast for Tuesday, September 9th, 2008. I'm Caleb Brown.

Freddie Mac and Fannie Mae, the two largest holders of mortgages in the United States are in the process of a government

takeover with a potential cost to taxpayers of hundreds of billions of dollars.

What's the appropriate next step for federalulators now charged with managing a significant chunk of the U.S.

economy.

Arnold Kling, a professor of economics at George Mason University, and an adjunct scholar at the Cato

Institute offers a few recommendations in his new Cato briefing paper, Freddie Mac and Fannie Mae, an exit strategy for taxpayers.

Well my view of what's happened over the weekend is that we haven't settled many

of the important long-term issues. I think part of what's happened over the

weekend honestly is the resolution of what I suspect is a long running feud between the regulators and Freddie Mac and Fannie Mae.

Freddie and Fannie have consistently railroaded their way through Washington using

heavy-handed lobbying and congressional friends, and the regulators have always come up short in their ability to stop them

and this is the first time when the civil servants have been able to come in and

actually derail management and to stop the lobbying efforts.

But in terms of the long-term outlook for the GSEs,

for the housing market, for mortgage finance, everything has been kicked into the future.

What should be the fate of Fannie Mae and Freddie Mac?

Well let me step back and say what should be the fate of the housing and the mortgage markets?

And then we can get to Freddie and Fannie within that.

For the housing market itself, I would like to see a market that is prices set by supply and demand.

I would like to see the people owning homes who and living in homes who can pay for the homes and people who cannot, and people who are in houses that are way too expensive for them should be out of those homes and in other homes. There's clearly

nothing in the what happened over the weekend that's trying to push in that

...