Thursday, July 31, 2008

More Fannie and Freddie

One of the other disturbing aspects of the housing bill is that on top of raising the cap for conforming loans that fannie and freddie can buy (essentially rewarding their insolvency), Congress seems to think it can wipe away all of Fannie and Freddie's ills with a new regulator. In the recent housing bill Congress abolished OFHEO (FM/FM's prior regulator) and created a new one with a new fancy name. I don't see what this will accomplish other than delaying eventual regulatory capture. If Congress was worried about systemic risk it would tide Fannie and Freddie over and then wipe out its shareholders, potentially nationalize the whole affordable housing part, and sell of the rest of Fannie and Freddie in pieces.

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