Replacing or revamping these two GSE’s has been under consideration for over a year now, and something clearly needs to be done. In the attached link to a Wall Street Journal article Paul Volker does not like them serving two masters, which is hard to argue with. Their first master is shareholders of the entity, yet the second master is expected to guaranty losses. That second master is Uncle Sam – which means you and I as taxpayers. Estimates of taxpayer funded losses are all over the board, but many experts anticipate ultimate taxpayer funding for FNMA and Freddie losses as high as $1 TRILLION. Yes Trillion with a “T”. Without govenrment bailouts (the entities are essentially in recievership with the govennment) the mortgage market would likely melt down. However, government support and even outright guaranty for losses, is a mismatch when private shareholders actually own the companies. It is time for a solution to the problem which is bleeding taxpayers, while insulating at least to some extent shareholders of these companies. Any solution will be complicated, challenging to impose, and will likely disrupt markets for awhile. However, can we really continue riding this horse (or horses)?
http://blogs.wsj.com/developments/2010/07/30/volcker-fannie-and-freddie-need-to-go/
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