This is a Cato special podcast. I'm Caleb Brown. There is talk of a government bailout of the biggest players in the mortgage market, but are Fannie Mae and Freddie Mac too big to fail or too big to bail out?

Cato Institute Senior Fellow Gerald P. O Driscoll comments.

I mean, ideally we've got to get them off the government dole which means try to move

toward quote unquote privatizing them the only realistic way of doing that is to start downsizing them and I thought it was interesting

that the person was supposed to be in my opponent on CNBC.

We ended up agreeing.

They've got to be downsides.

They can't be such a big part of the

mortgage market if you downsize them and just make them another player then it's easy

to say well you know let's sever the link between the government and these entities they're like

Citibank or Wachovia or you know another financial institution and more

capital would be good and and the two together work in tandem if you raise more capital

and you downsize them then they're viable financial institutions.

Their basic capital requirement is 2.5%. A bank is in the 6 to 8% range. They should have to be brought up to that level.

How does Congress go about saying, oh, guess what what you can't borrow from us anymore or

something like that well I think that first you put them

into the condition where they're just like an ordinary financial institution and

would have no reason to borrow from congress that is

to parts

they're not such a significant part of a mortgage market one

and two

they're adequately capitalized so they can borrow money the same way that

...