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On the Importance of the Plumber: The Intersection of Theory and Practice in Policymaking for Federal Financial Institutions

The federal government’s role as lender and insurer is very important, with over $ 1.4 trillion of loans and guarantees and at least $ 7 trillion of insured risk. Tens of millions of Americans benefit from housing loans, student loans, flood insurance, etc. Yet the federal financial institutions established to run these activities are often created almost as an afterthought, with little focus on their structure. This paper emphasizes the crucial importance of ending this neglect and recognizing how proper structure can help avoid major failures, such as the current problems at the Pension Benefit Guaranty Corporation, and enhance successes. The author also challenges the economics profession to provide more guidance on a range of specific analytical issues with real-world implications, because economists have often failed to extend analyses derived from the private sector into useful formulations for public sector practitioners.

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