Peter Schiff Calls Fannie, Freddie Privatization a Rejection of Capitalism
Economist Peter Schiff critiqued Bill Ackman's proposal for Fannie Mae and Freddie Mac privatization on X, arguing it would surrender taxpayer value and entrench moral hazard.
Peter Schiff, chief economist at Euro Pacific Asset Management, posted on X today, October 23, 2026, a detailed critique of Bill Ackman's proposed privatization of Fannie Mae and Freddie Mac.
Schiff's extensive post comes amidst ongoing discussions about the future of Fannie Mae and Freddie Mac, nearly two decades after they entered conservatorship.
Schiff contends that Ackman's plan entrenches the moral hazard that led to the original collapse and bailout of the GSEs.
Peter Schiff, chief economist at Euro Pacific Asset Management, posted on X today, October 23, 2026, a detailed critique of Bill Ackman's proposed privatization of Fannie Mae and Freddie Mac. Schiff stated that Ackman's plan for the government-sponsored enterprises (GSEs) does not create new wealth for taxpayers, but rather "would surrender taxpayer value, regardless of whether Washington writes another check." He challenged the notion that assigning a higher market value to retained government shares equates to a taxpayer windfall.
Schiff's extensive post comes amidst ongoing discussions about the future of Fannie Mae and Freddie Mac, nearly two decades after they entered conservatorship. The debate over their privatization involves complex financial arrangements and the extent of government backing for the mortgage market. While no direct recent coverage on Fannie and Freddie was listed, the broader economic beat has seen discussions around policy implications, such as Jason Furman's insights on California wealth tax revenue.
Schiff contends that Ackman's plan entrenches the moral hazard that led to the original collapse and bailout of the GSEs. He asserts that the proposal, particularly its reliance on continuing federal support and an explicit Treasury backstop, represents "a rejection of capitalism, as it substitutes government price fixing for free-market price discovery." Schiff argues that if government subsidies inflate housing prices and encourage risk-taking, then ending these subsidies and allowing private investors to price and bear risks would align more closely with free-market principles.
“Pershing Square’s @BillAckman presents his proposed Fannie and Freddie privatization as a windfall for taxpayers. But assigning a higher market value to shares the government continues to hold does not, by itself, create new wealth for taxpayers. Taxpayers already own valuable senior preferred-stock rights and warrants. Ackman wants Treasury’s preferred investment deemed repaid. Yet past payments were dividends; they did not extinguish that investment under the agreements. Giving up those rights without equivalent compensation would surrender taxpayer value, regardless of whether Washington writes another check. His more recent relisting proposal emphasizes the estimated value of Treasury’s retained common shares. If Treasury sells only a small portion, most of that headline valuation would remain an unsold asset—not cash received. Unsold shares have economic value, but that value must be compared with the rights and future income taxpayers surrender, together with the cost of continuing federal support. Merely replacing a valuable senior claim with an estimated common-stock value does not establish a gain. Any eventual stock sales must pass the same test. Selling an income-producing asset generates cash while relinquishing future income. Neither the sale proceeds nor the value of the remaining shares can simply be presented as wealth newly created by privatization. A significant part of the shares’ value would reflect continuing federal support and privileges unavailable on equivalent terms to competing mortgage guarantors (a privilege that may violate the Equal Protection Clause of the U.S. Constitution). To the extent an underpriced government backstop increases share prices, Washington would be helping support that valuation at taxpayers’ expense. That subsidy cannot simply be counted as a taxpayer windfall. Before conservatorship, Fannie and Freddie’s securities expressly disclaimed a federal guarantee. Investors nevertheless assumed Washington would prevent a default. That was the 'implicit guarantee.' Ackman wants eventual release with explicit contractual Treasury backing. His January 2025 exit plan assumed roughly $445 billion would become available for future support, including about $191 billion already drawn. Trump cannot create authority for those commitments merely by signing an executive order. Anything beyond existing statutory authority requires congressional approval, which a Democratic-controlled Congress will likely refuse to grant. While private investors would absorb initial losses, taxpayers would remain exposed to catastrophic losses. Meanwhile, surrendering Treasury’s senior rights would allow more earnings to flow to private shareholders. A severe housing crash would destroy the value of Treasury’s retained common shares precisely when its backstop was called upon. Ackman’s plan entrenches the moral hazard that contributed to the original collapse and bailout. After nearly two decades of conservatorship, we would emerge with the fundamental problem not only intact but worse. Calling the backstop 'paid for' does not establish that its price adequately protects taxpayers. Ackman assures the public that his plan will not lead to higher mortgage rates. But that is only possible if taxpayers absorb risks that private lenders otherwise would have priced in. Advocating for such a government subsidy is a rejection of capitalism, as it substitutes government price fixing for free-market price discovery. If Trump and Ackman want smaller government and free markets, they should work toward ending mortgage subsidies and allow private investors to price and bear the risks. Government subsidies inflate housing prices, encourage excessive risk-taking, raise default rates, and lead to larger losses. More importantly, government subsidies encourage people not ready to assume the responsibility or the expense of homeownership to buy instead of rent. A free market in mortgage lending will better ensure that homes are purchased by borrowers who can truly afford to own them. Ackman has disclosed his funds’ ownership of Fannie and Freddie shares, so he is not hiding that conflict of interest. But when he purports to advocate public policy, he is really just talking his book. If Ackman really believes his proposal is in the best interest of the country, and not just in his personal financial interest, I challenge him to publicly defend that position in a debate with me. I have no position in the GSEs and no personal financial interest in the outcome. My only goal is to move the country closer to free-market capitalism and further away from socialism.”
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