Tuesday, August 05, 2008

Perils of PPP

I return to this blog after a bit of a layoff thanks to various preoccupations.

As somebody who has been somewhat sceptical about public-private partnerships (PPPs), I have watched with some interest the sly bailouts of Freddie Mac and Fannie Mac, two, private, secondary market institutions for home loans in the US. These guys operated for years on public sector and raked in enormous returns for shareholders and executives. Now, when they are in trouble, the taxpayer has to step in.

The obvious thing to do- as even the die-hard exponent of the free market economy, The Economist, has urged- is to nationalise the two institutions. One option later would be to privatise the commercial components, leaving behind a rump that can be remain in the public sector in order to meet social obligations. But, nationalisation is anathema to the neo-cons in power, so what we have is covert public ownership.

More on this and the implications for Indian banking sector in my last ET column, Private profits, public losses.

1 comment:

vaib said...


Well as some people have put this current crisis as an eg. of 'moral hazards', we cannot help but sway our heads in agreement with the steps taken by Central institutions.
Closer home, sooner or later we will hear the same story with the protaganists replaced by ICICI bank and RBI. The frantic pace and callousness seen in ICICI's lending is no different from the greed behind mortages to people with not so good credit history.

Can we say it as necessasry evil?