Wikinvest Wire

Siding with the Prez on this one

Thursday, August 09, 2007

It is downright hilarious to hear so many now clamoring for the return of Fannie Mae and Freddie Mac to act as "white knights" to save a very troubled mortgage industry when they're the ones that started it all about five years ago with the first tidal wave of mortgage backed securities and derivatives.

And Fannie Mae has filed like two financial statements in the last four years?

A beleaguered President Bush makes an astonishing amount of sense on this issue, as reported earlier today:

Bush: GSEs need reform before raising mortgage investment caps
US President George Bush today said Fannie Mae and Freddie Mac need to be reformed to ensure they stick to their core mission of buying and securitising home mortgages before either is allowed to increase their investments in mortgage-backed securities.

'Congress needs to get them reformed, get them focused, get them streamlined, and then I will consider other options,' Bush said in a White House press conference.

Bush said his administration has put up a reform package for both institutions. The proposal came amid complaints that Fannie Mae and Freddie Mac put too much focus on investing in the market, and have strayed from their core mission.
The single bit of "regulation-like" activity that Alan Greenspan accomplished all throughout the housing bubble was to shift the risk away from Washington and on to Wall Street, moving the lion's share of mortgage backed security origination far away from the OFHEO.

We are now seeing the result - here's a chart to refresh your memory:

The above chart was published earlier this year as part of a Hogan's Heroes analogy:
During his term, the former Fed chairman was much like Sergeant Schultz on the 1960s hit comedy series Hogan's Heroes. Fans will recall that the good-hearted German POW camp guard would invariably look the other way after spotting all sorts of untoward behavior.
For a photo of the lovable Sergeant Schultz and a chart of subprime mortgage originations from Credit Suisse, see the original post.

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justin said...

Isn't this the desired effect, at this point? To let all these bad loans blow up on Wall ST. rather than in the posession of a GSE? As you stated the GSE's have a enough financial turmoil of their own right now.

Tim said...

I think so.

About the only "systemic risk" that the Fed identified in the last two decades was Fannie and Freddie back in 2003 (Bernanke wrote on that subject, Greenspan was instrumental in getting caps for both the GSEs).

CityUnslicker said...

Nice of the Fed though to bail out the banks and hedge funds; let's not worry so much about the people who will default on the loans....

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