Government Influence and the Failure of Fannie Mae and Freddie Mac

In 2008 two government-sponsored enterprises, Fannie Mae and Freddie Mac, were placed into conservatorship due to insolvency. The financial bailout of the two publically traded corporations came at the expense of the American tax payer. This study investigates the relationship between direct and indirect government influence and the increasing risk taking of Fannie Mae and Freddie Mac from the late 1990’s through their conservatorship in 2008. As government-sponsored enterprises Fannie Mae and Freddie Mac have many special advantages that other publically traded companies did not possess. These advantages allowed Fannie Mae and Freddie Mac to increase their profitability. Theoretical literature regarding Congress and the bureaucracy suggests that the actions of bureaucrats can be linked to the preferences of Congressional members because bureaucrats are responsive to potential threats or perceived threats from the legislature. This theory is applicable to Fannie Mae and Freddie Mac, and is used to explain why the government was able to directly and indirectly influence the government-sponsored enterprises. Overall this investigation has determined that the United States government pursued a clear mission that determined to increase the availability of housing to all Americans, specifically to low-income and under-served individuals, through the use of the government-sponsored enterprises. Despite this link there is no conclusive data to show that the pursuit of this housing mission led Fannie Mae and Freddie Mac to operate in riskier business segments. This study has also found that motivation regarding profit-seeking and compensation structure provide a more plausible explanation for why the government-sponsored enterprises began to engage in riskier business practices that led to their insolvency.

Capuchin Monkeys (Cebus apella) Fail to Be Equitable in an Ultimatum Game

The ultimatum game is a commonly used economics game testing humans' sense of fairness. In the game, a "proposer" is given a sum of money and is told they can split it however they want with another human partner. The partner can then either accept the division and both proposer and responder receive the proposed amounts, or the responder can reject the offer and neither player will get anything. Human subjects from most western cultures typically share almost half of an allotted amount, but it remains unknown whether our close primate relatives share this generosity. Recent attempts to present chimpanzees with the ultimatum game have provided inconclusive results, with some studies finding the animals share humans' disposition to behave 'fairly' and others concluding that chimpanzees act selfishly to maximize their own rewards. Capuchin monkeys are known to share many human and chimpanzee social and cooperative behaviors, and this study was the first to present capuchin monkeys with a version of the ultimatum game. Subjects were presented with two differently colored tokens representing different qualitative reward contingencies, one equitable and the other inequitable in favor of the subject proposer. Subjects could select and place one of the tokens in a transfer container. The capuchins were first tested with a "dictator game" where, after the subject monkey selected a token, the rewards (equitable or inequitable) were distributed to the subject and a nearby partner monkey that was not an active participant. The capuchins were then tested on an ultimatum game in which after the subject selected and placed a token in the container, the container was moved to the partner. The partner needed to remove the token and transfer it back to the experimenter for the rewards to be distributed. As such, the partner could reject the subject's offer by refusing to participate and neither would receive a reward. The experiment was conducted to determine if the subject monkey would select the equitable reward option rather than the selfish option in order to maintain the partner's cooperation in the task. Capuchin subjects behaved selfishly and selected the inequitable token significantly more often than the equitable token in both the dictator and ultimatum game with no significant difference in preference between the two games. Interestingly, despite the occasional occurrence of rejection by the partner monkeys (resulting in no reward for the subject), subjects never altered their strategy, continuing to prefer the selfish token. The study may indicate that capuchin monkeys have an inability to judge the effect of their behavior on a conspecific's reward outcome, or an indifference to the outcome if there is an individual cost associated with behaving prosocially.