Thursday, July 24, 2008

Fannie and Freddie

It appears that Fannie and Freddie are about to be rewarded for their failure. While it is understandable that the government would want to bail out the GSEs because they are "too big to fail", it is not understandable that Congress seeks to reward the GSEs by lifting the cap on conforming loans from $417k to an excess of $600k that Fannie and Freddie can buy. I think the discussion of what to do with Fannie and Freddie should focus on whether to nationalize or privatize (and by privatize, I mean no implicit nor explicit guarentee) Fannie and Freddie. And in either scenario the shareholders should be wiped out.

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