The Life Cycle of the Government‐Sponsored Enterprise: Lessons for Design and Accountability

Abstract

The federal government uses government‐sponsored enterprises (GSEs) to allocate credit to sectors such as housing and agriculture that are considered to deserve special support. The GSEs illustrate the importance of life cycle in the design and accountability of federal agencies and instrumentalities. Four case studies are presented here. In general, market and political dominance and rapid growth are inherent in GSE design. Dominance means inadequate feedback, which can foster poor management and financial risk. Government lacks an exit strategy for GSEs that have outlived their usefulness. Government should systematically review the organizational structure, accountability, and design of all agencies and instrumentalities, both at inception and over their life cycles.

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