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Economic and Legal Considerations of Optimal Privatization: Case Studies of Mortgage Firms (DePfa Group and Fannie Mae)

Author

Listed:
  • Mr. John R. Garrett
  • Hans-Joachim Beyer
  • Ms. Claudia H Dziobek
Abstract
Successful privatization must be accompanied by the complete removal of privileges and any public policy mission. Bank behavior changes rapidly as profit maximation replaces the bureaucratic objective function. Once privileges are granted, they are difficult to remove. Therefore, privatization is a one-time (nonreversible) operation. The German mortgage bank, DePfa, went through a carefully planned and lengthy privatization process that was successful. Fannie Mae, the U.S. mortgage firm, became a privately owned institution endowed with special privileges, which led to a quasi-monopoly position. This resulted in suboptimal financial sector performance. Fannie Mae’s special privileges have proven resistant to reform efforts.

Suggested Citation

  • Mr. John R. Garrett & Hans-Joachim Beyer & Ms. Claudia H Dziobek, 1999. "Economic and Legal Considerations of Optimal Privatization: Case Studies of Mortgage Firms (DePfa Group and Fannie Mae)," IMF Working Papers 1999/069, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1999/069
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    Citations

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    Cited by:

    1. Danny Ben-Shahar, 2008. "Default, Credit Scoring, and Loan-to-Value: a Theoretical Analysis under Competitive and Non-Competitive Mortgage Markets," Journal of Real Estate Research, American Real Estate Society, vol. 30(2), pages 161-190.
    2. Khan, Iram, 2006. "Public vs. private sector : an examination of neo-liberal ideology," MPRA Paper 13443, University Library of Munich, Germany.
    3. Mr. Michael Andrews, 2005. "State-Owned Banks, Stability, Privatization, and Growth: Practical Policy Decisions in a World Without Empirical Proof," IMF Working Papers 2005/010, International Monetary Fund.

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