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Hank Paulson's Fannie Gamble

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moh malekpour

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May 25, 2002
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Certified Residential Appraiser
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California
http://online.wsj.com/article/SB121754567926302543.html?mod=todays_us_opinion

I knew it was coming and here is the first critism to the bill

The more plausible reason for the bill's structure is that the decades of coziness between politicians and Fannie and Freddie is paying off. Not only were there campaign contributions, but their "foundations" contributed huge sums to think tanks, and many political figures made the transition from government to the GSEs. The list of their connections reads like a combined Washington-New York phone book, and undoubtedly gives the appearance that both Wall Street and politicians close to Fannie and Freddie had key seats at the bargaining table over this bill. The taxpayer was not adequately represented.

Nor was the homeowner an obvious beneficiary. Both conforming and jumbo mortgage rates have risen about a quarter point during July. The new law actually reduces the amount of competition in the mortgage securitization business going forward by solidifying the special position for the two leading players, Fannie and Freddie, while competitors scramble to get capital.

The legislation also creates long-term uncertainty with regard to the extent and form of government assistance. In effect, Treasury Secretary Paulson now has an open-ended mandate to bail out the nation's troubled housing finance market, the largest single capital market in the world.

If any other country announced that its finance minister could print unlimited debt to do something similar, financial markets around the world would dump both the country's debt and the country's currency. It may well be different because this is the United States of America. But certainly, to take such a risky and unprecedented step, a better crafted and considered piece of legislation should have been created.
 
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