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Regime Uncertainty Exemplified in the Fannie/Freddie Debacle
The February issue of Vanity Fair has an interesting article on the politicking associated with the Fannie/Freddie debacle. Toward the end of the story (p. 146), the author, Bethany McLean, describes a late-stage episode in this tale that nicely exemplifies the concept of regime uncertainty. I proposed the idea of regime uncertainty in a 1997 article about the extraordinary duration of the Great Depression. I argued there that the Roosevelt administration’s overt hostility toward investors as a class, especially after 1935, created fears about the security of private property rights and, indeed, about whether the economy would continue to be based on such rights or, instead, would be subjected to some species of collectivist takeover or dictatorship. The idea of regime uncertainty, however, may also be applied in many other contexts where the same kind of uncertainty tends to paralyze long-term investors, as it did in the latter half of the 1930s....