A 'Failed Business Model'

Peter J. Wallison has written a good commentary at Forbes, "A 'Failed Business Model' " and calls Treasury Secretary Henry Paulson's plan a "major disappopintment."

Although it was certainly necessary to bail out ailing mortgage giants Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ), the plan put forward by the treasury secretary this weekend prioritizes steering them back to financial health and defers into the future what is to become of the companies.

What's worse, after blaming the collapse of the companies on a "flawed business model," the plan will preserve that model indefinitely, allowing the shareholders of what are now insolvent entities to recover some value.

Long after Paulson is gone from the Treasury, Washington will be wrestling with the problem of what to do about Fannie and Freddie. And if the two companies are eventually nationalized, privatized or liquidated, the government--meaning taxpayers--will have to compensate the existing shareholders in some way.

Go read it all.