"At a certain point, you've made enough money"

• I Wear Pants

  Is cleaning up half the vomit not a small improvement though?
  
  I don't know how much of the current financial reform bill carries over into Fannie and Freddie territory but if it doesn't then I wholeheartedly agree that something needs done there as well.
• Manhattan Buckeye

  I hope everyone knows that Freddie/Fannie trust preferred securities were considered Tier 1 capital for banks. Banks held these securities. Whether their 'poor' lending standards were residential or commercial, for many of these failed or near failed banks their capital ratios were dependent on Fannie/Freddie (probably not a good decision, but it was still a government sponsored decision).
• I Wear Pants

  Real question for the people who oppose this regulation: Do you just think what they're doing is a particularly bad way to go about it or are you against any regulation or rules for how businesses operate?
  
  If you are against regulations then how do you propose we avoid repeating this cycle over and over again?
• IggyPride00

  

  Fannie and Freddie are easy targets at this point, but the truth is that no one on either side of the aisle has the first clue as to what to do with the housing market if they were shit canned, which is why they are not in the finreg bills.
  
  The private market wants nothing to do with the mortgage guarantee business right now regardless of the credit worthiness of the buyer. Eliminating Fannie and Freddie would dry up all liquidity in the mortgage issuing business, and that would only crater an already bad housing situation. As housing deteriorates under that scenario, even the mark to myth accounting gimmicks banks are using now to disguise housing losses won't be enough to save them and we would see a wave of bank failures.
  
  Returning them to their previous GSE status is not an attractive option, because it invites moral hazzard due to the implicit government guarantee. Not to mention, the entire concept of a GSE is a recipe for disaster because you have often competing interests between the private shareholders and the government. This played itself out in the way of lending standards racing to the bottom the past decade as private shareholders, angry abotu losign market share to investment banks, demanded Fannie and Freddie decrease lending standards in order to compete. In many ways that went against the spirit of what the companies were designed to do, which was bring liquidity to the mortgage market for relatively safe, high quality loans.
  
  Another option would be to recommission them strictly as an entity of the government and run them like a public utility with high standards for the types of loans they would buy. In theory this idea makes the most sense as it, but in doing so Fannie/Freddie's 5 trillion dollars of liability would have to go on the government's balance sheet, which would cause a tremendous spike in the national debt and probably precipitate a Greece like scenario as well as a dollar crisis as our debt/GDP ration would explode overnight worse than it already is.
  
  As you can see, it is easy to demagogue F/F, but when you get down to the issues of what to do with them and how to keep the mortgage market functioning and house prices from falling off a cliff, you see there are really no good solutions.
  
  It makes for a great talking point to lay the blame on them and say get rid of them, but the problem is no one has a workable solution right now so it is being kicked down the road with the hope at some point the housing market stabilizes further and it becomes possible to deal with them without bringing on an unintended financial crisis.
• Manhattan Buckeye

  "It makes for a great talking point to lay the blame on them and say get rid of them,"
  
  I think then argument (at least on a similar thread a few months ago) isn't about laying the blame on them, it is the complete lack of blame they are getting. In the aforementioned thread someone posted a NYT article explaining the economic collapse and somehow managed to not mention Fannie or Freddie at all. Of course it is political.
  
  At any rate mortgage insurance is a big business, even without a government guarantee there is someone willing to underwrite mortgages, I do a lot of work for Genworth and that's darn near half of their business.
• CenterBHSFan

  

  Speaking of Freddie Mac...
  
  They're now asking for 10.6 billion dollars
  
  http://www.wtov9.com/money/23466137/detail.html?treets=steu&tml=steu_natlbreak&ts=T&tmi=steu_natlbreak_1_04120105052010
  

  WASHINGTON -- Freddie Mac is asking for $10.6 billion in additional federal aid after posting a big loss in the first three months of the year. It's another sign that the taxpayer bill for stabilizing the housing market will keep mounting.
  
  The McLean, Va.-based mortgage finance company has been effectively owned by the government after nearly collapsing in September 2008. The new request will bring the total tab for rescuing Freddie Mac to $61.3 billion.
  
  Freddie Mac says it lost $8 billion, or $2.45 a share, in the January-March period. That takes into account $1.3 billion in dividends paid to the Treasury Department. It compares with a loss of $10.4 billion or $3.18 a share, in the year-ago period.