The Economist asked several experts to recommend options for resolving Fannie Mae and Freddie Mac, the two failed mortgage giants.
In addition to comments, the magazine’s web site allows users to recommend responses they like. It’s hardly scientific, but since the rankings (as of 9:15pm eastern time) work to my favor, let me rank them in declining order of recommendations:
My co-author Phill Swagel (a whopping 13 recommendations) describes our joint proposal for fully private GSEs that purchase an explicit backstop from the government for their mortgage-backed securities. Pros: The relationship is explicit and transparent, taxpayers are compensated for bearing risk, the portfolios are eliminated, the government backstop will soften severe mortgage meltdowns, and competition can discipline the Fannie and Freddie duopoly. Cons: There are still risks from the remaining government role.
Larry Kotlikoff (11 recs) outlines another proposal to restructure the companies into more sensible private entities. His model: mortgage mutual fund companies.
John Makin (7 recs) wins the award for brevity, arguing that they should be liquidated over 5 years.
Mark Thoma (4 recs) suggests a continued role for the firms, as long as they face much tighter regulation.
Tom Gallagher (4 recs) proposes putting them back on the federal budget as real agencies. This avoids some potential pitfalls of having them run as private companies.
P.S. As an anonymous commenter helpfully points out, the entries over at the Economist have these newfangled things called “dates” associated with them. Not sure how I missed that. The two highest scorers are also the oldest. Also, I must confess that I clicked the recommend button on Phill’s piece, lifting it to 14 votes. Because of some weird interaction between Safari and the Economist site, however, that resulted in it believing that I recommended all five pieces. Ah the perils of technology.
5 thoughts on “What To Do With Fannie and Freddie?”
That’s not a very good metric since some of those have been up for many more days than others and that affects the number of recs. (some have been up for less than a day, others several days). Plus, those at the top always get more than those further down.
So the number of recs doesn’t say much. At all.
Thanks. I completely missed the dates.
Thanks for sharing the link in your post. And thanks to you and Phill for forwarding your thoughtful proposal to “jump start” a debate about the pros and cons of reforming Fannie and Freddie.
I favor something more along the lines of Kotlikoff to better avoid the risks from government intervention in the home loan market. I believe it is essential to carve up the “too big to fail” intermediaries Fannie and Freddie into much smaller entities and eliminate the Federal insurance. Any government involvement will likely lead to social engineering “mission creep” as the painful memory of the most recent financial crisis subsides.
I understand the politics of housing/mortgage lending policy suggest Congress and housing bureaucrats will fight hard to maintain power over mortgage insurance, etc.. But the social welfare cost and human suffering of federal social engineering in the mortgage lending market has proven too high relative to benefits in my opinion.
Again, I read every blog article you post and really enjoy reading your ideas. Keep up the great work!
Just like FAnnie & Freddie, we were all taken by a tactile illusion by the banks.
I tell you this to get your attention to what has happened. I have the facts, law and proof to show this crime.
To better understand, one would need to read the articels I have published at scribd.com/alviec.
What has happened is the banks failed to follow the laws in regards to mortgages, and therefore subjected millions of mortgage loans into unsecured debts.
Then these, sellers of mortgage backed securities, used these unsecured loan to make money from.
The mortgage backed securities were worthless. They had no intrinsic value when they were sold to the investors.
There are certain laws to go by when creating the secured debt. They are UCC Article 3, UCC Article9, and the local laws of jurisdiction.
E-Sign and UETA, do not have anything to do with Negotiable Promissory Notes.
Read 15 USC 7003. Negotiable Instruments are excluded.
So, if these sellers of mortgage backed securities are using electronic mortgage packages, they are selling a mortgage that has no law to support it. They are illegal.
The information to explain this, along with the laws to support it, and the admission by the Florida Bankers Association, that the paper mortgage is being converted from paper to electronics, the reader should be able to understand that millions of mortgages are forgiven, when the mortgage went from paper to electronic.
The banks got us all in this fraud.
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