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Fannie On Freddie: The Sound Of Silence

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George Hatch

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Jan 15, 2002
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Certified General Appraiser
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California
Fannie's position:
"Fannie Mae is a highly regulated company, and subject to a rigorous risk-based capital standard enforced by OFHEO. We have always supported having a strong well-funded regulator consistent with our role in supporting an efficient well-functioning housing finance system. We are confident that any actions that policymakers consider would be undertaken with a desire to support the housing market--the most critical aspect of the economy today--and the vital role Fannie Mae plays in this system. Therefore we do not believe Congress will take action to change our status or in any way impair our mission or operations in serving the US housing finance system," Fannie Mae stated.


It's a given that the role the GSEs play in our economy is of great importance. Important enough that I'm sure a lot of pretty smart people would consider that "failure is not an option" with respect to the GSEs. But you can see in their comment above that they think just exactly like a bank or mortgage broker. They see their role as "supporting an efficient, well-functioning housing finance system", but they don't mention anything about their role in actually protecting that system. There are other avenues for selling mortgages to Wall Street, the GSEs aren't the only ones by any means. The reason they were given the extra advantages in the first place is because it was considered that, being closely affiliated with the government, they would conduct their operations with more focus on safety and security, less on profits. There's really no good reason for a GSE to make more than an average profit from their operations, say, equal to that of a defense contractor of similar size (employee wise).

They're just like every other bank out there, they all think it's about keeping the machine running and making a buttload of money in the process, not about keeping it running safely even if they lose money during the worst years. Further, they are asking Congress to just leave them alone, no more oversight is necessary, thank you very much, because they don't have any roblems and they're making lots of money. How many banks and S&Ls were saying exactly the same thing back in the '80s? "We know what we're doing and everything is functioning well. We're making lots of money. " Come to find out, it doesn't matter how much money a bank makes; what matters is that they take care of business safely and soundly.

Freddie and financial derivatives, what a combination that one is. It's the financial equivalent of shooting craps, only it involves using dice you can't read. At least they could understand the junk bond market bacnk in the '80s; derivatives are a whole different animal, one I personally think Wall Street dreamed up for the specific purpose of stealing other people's money. All this makes me wonder where Fannie has their assets.


George Hatch
 
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