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From the GSEs to Wall St. back to the GSEs
Wednesday, October 28, 2009
This chart from a paper titled Recent Developments in Mortgage Finance from the San Francisco Federal Reserve has been popping up in a number of places over the last day or two and it's interesting to see how people are reacting to it.
Naturally, those on the left think it's vindication for the GSEs who were almost bit players during the worst of the housing market excess in the middle of the decade.
It's not clear what it might mean to those on the right, but I'll tell you what it means to me, as noted in these pages over the years, for example in this item from last year.
In a follow-up to Jeremy Grantham's comments about the former Fed Chairman whose name graces this blog, the offloading of mortgage securitization from the GSEs to Wall Street was Alan Greenspan's sole accomplishment in minimizing systemic risk during his entire 18 year term. He was instrumental in limiting the size of the GSEs' portfolios and, naturally, all that mortgage securitization had to go somewhere, so it went to Wall Street.
The rest, as they say, is history.
3 comments:
I don't see anyone pointing out the one thing that alarms me when I see this: the huge explosion in Ginnie Mae. That's the GSE backed by 'full faith and credit'. Doesn't that worry anyone else?
How is that different than Fannie and Freddie (practically speaking)?
In my opinion the govt is severely limiting the potential of new and up and coming business by continuing to prop up failed companies like Citigroup, AIG, GM, etc. They are wasting huge sums of taxpayer money that could instead be used to support new companies with sustainable business models. And until this trend changes, of which there has been little evidence of, I think the economy is going to continue to suffer significantly. That's why I think one of the few ways for the average person to protect him or herself from this is to invest some portion of their portfolio in gold related assets. I recently saw some good articles at http://www.goldalert.com which discuss the policies of the Federal Reserve and Treasury and their impact on the financial markets, fiat currencies, the gold price, and particular gold mining companies that are leveraged to the gold price. One article I found especially helpful is called "Gold Price Up, Dollar Down - Does it Matter?" which talks about the history of monetary policy in the US and the consequences of the inflationary system that the Fed perpetuates.
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