
Evaluating the Rescue of Fannie Mae and Freddie Mac - bpolania
http://libertystreeteconomics.newyorkfed.org/2015/10/evaluating-the-rescue-of-fannie-mae-and-freddie-mac.html#.Vh_RsRNViko
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maxerickson
_The many legislative proposals to date all reflect the crosscurrents of
trying to protect the taxpayer, preserve support for the thirty-year fixed-
rate mortgage, and keep homeownership affordable to a wide spectrum of
borrowers._

It seems to me that making housing affordable is a better goal than making
home ownership affordable.

Any program targeted at home ownership should at least be benchmarked to
actual ownership and not nominal debt based ownership. So for example, a
policy that results in twice as many people taking out home mortgages but
fewer people owning more than 50% of the equity in their homes isn't
encouraging ownership, it's encouraging mortgage taking.

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roymurdock
_The conservatorships have also strikingly failed in relation to our fifth and
final objective of producing long-term mortgage finance reform. As Treasury
Secretary Henry Paulson wrote, “We described conservatorship as essentially a
‘time out,’ or a temporary holding period, while the government decided how to
restructure the [government-sponsored enterprises].” However, starting the
conservatorships turned out to be easier than ending them, and the “time out”
has now stretched beyond its seventh year with no clear path to reform._

What did the government expect? It's not like Fannie and Freddie are going to
ask to be released from conservatorship and re-assume the risk that they are
currently sharing with taxpayers. TARP, QE, bailouts, nationalization, and
government conservatorships were all designed with the aim of preserving the
status quo and keeping the system running on pre-recession paradigms. None of
the organizations that benefit are going to voluntarily relinquish access to
these crutches.

Releasing the two GSE's would be a great test to see if the Fed and
government's plan for reform and economic stability has really been effective.

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lucozade
> None of the organizations that benefit are going to voluntarily relinquish
> access to these crutches

Except of course that that's exactly what most of them did. By taking
preferred stock the treasury gave the banks an incentive to buy back the
shares and make the treasury a bit of money on the side. Much better than the
UK government buying common stock and being stuck with it till they sell at a
loss (as they're doing now).

My understanding of the GSEs is that they're still haggling over precisely
what form they ought to take in the brave new world i.e. it's not particularly
that they want to be state run.

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roymurdock
For the banks, the real crutch is the mental/precedence crutch of - buy back
your equity and go back to running things as normal, and if the system fails
we'll bail you out through nationalization yet again, so for now you can
continue to operate under the taxpayer-shared-risk assumption.

Using preferred stock was intelligent design in a micro level, but at a macro
level the incentives and risk/reward profile constructed by the bailouts and
liquidity injections is completely perverse.

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mjpuser
As a programmer, I think it's better to just "Let it crash". The reasons that
they left are so high level, they are meaningless. This is a 10 paragraph
article on an evaluation of the global economy. How was this published with
any degree of sincerity?

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parasubvert
That presumes there are no consequences to "let it crash".

A programmer for a respiration system software would not necessarily "let it
crash", as this could kill someone.

The same applies for institutions that back the global economy. Letting
Freddie and Fannie crash meant that $5 trillion in mortgage-backed securities
would evaporate. That would trigger a global depression on par with an
asteroid crash or super volcano eruption.

"The reasons that they left are so high level, they are meaningless."

The article is pretty concrete as to its summary of the situation with the
GSEs, and ended with a conclusion (with backing paper link) that they should
be replaced by a private system. I'm not sure what more you'd want?

"How was this published with any degree of sincerity?"

I have the same question for your post. You come across as "I don't understand
it, therefore it must be wrong/insincere". Could it be possible that they have
an idea what they're doing, and you are not the target audience for this
article?

