Elliott
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WSJ Editorial,
Fannie Mae Alchemy
February 29, 2008; Page A16
Both Fannie Mae and Freddie Mac lost lots of money last quarter and last year -- and we mean lots. If they continue losing money at current rates, in fact, they could find themselves below their mandatory capital requirements in another six months or so.
Fannie and Freddie think that the best way to deal with this problem is to allow them to leverage up even further by reducing those same capital requirements. Some on Capitol Hill, notably New York Democrat Chuck Schumer, agree. Like maxed-out consumers who were about to reach their credit limit, Fannie and Freddie already hit up investors for a cool $13.8 billion in additional capital last quarter. But as they continue to lose money, their capital position remains tenuous. So now, with the help of Senator Schumer and other friends on the Hill, they're trying to get their credit limits raised. Like political alchemists, they want to turn their losses into the gold of more profit-making opportunities. James Lockhart, the regulator responsible for Fannie and Freddie, gave them a bit of relief this week by eliminating caps on the size of their investment portfolios, and their stock prices jumped. Now the pressure is also on Mr. Lockhart to lower their capital requirements, but nothing about their results suggests that Fannie and Freddie need more risk in their lives -- or ours. The two government-sponsored mortgage giants lost $6.1 billion between them in the fourth quarter.
......
So, what in the world is Congress doing? Mr. Schumer cheered Wednesday when Mr. Lockhart lifted the caps on the companies's portfolios. We guess he thinks that what we really need is more taxpayer exposure to the risk of a meltdown at Fan and Fred. Meanwhile, the reform bill passed by the House last year is stalled in the Senate Banking Committee, thanks in part to Democrats like Mr. Schumer. This is the bill that would strengthen the regulator's power to make sure the two giants stay solvent. What Fannie and Freddie really need is a regulator with the clout to cut up their credit cards before they get into even deeper trouble -- and take the rest of us along with them.
Fannie Mae Alchemy
February 29, 2008; Page A16
Both Fannie Mae and Freddie Mac lost lots of money last quarter and last year -- and we mean lots. If they continue losing money at current rates, in fact, they could find themselves below their mandatory capital requirements in another six months or so.
Fannie and Freddie think that the best way to deal with this problem is to allow them to leverage up even further by reducing those same capital requirements. Some on Capitol Hill, notably New York Democrat Chuck Schumer, agree. Like maxed-out consumers who were about to reach their credit limit, Fannie and Freddie already hit up investors for a cool $13.8 billion in additional capital last quarter. But as they continue to lose money, their capital position remains tenuous. So now, with the help of Senator Schumer and other friends on the Hill, they're trying to get their credit limits raised. Like political alchemists, they want to turn their losses into the gold of more profit-making opportunities. James Lockhart, the regulator responsible for Fannie and Freddie, gave them a bit of relief this week by eliminating caps on the size of their investment portfolios, and their stock prices jumped. Now the pressure is also on Mr. Lockhart to lower their capital requirements, but nothing about their results suggests that Fannie and Freddie need more risk in their lives -- or ours. The two government-sponsored mortgage giants lost $6.1 billion between them in the fourth quarter.
......
So, what in the world is Congress doing? Mr. Schumer cheered Wednesday when Mr. Lockhart lifted the caps on the companies's portfolios. We guess he thinks that what we really need is more taxpayer exposure to the risk of a meltdown at Fan and Fred. Meanwhile, the reform bill passed by the House last year is stalled in the Senate Banking Committee, thanks in part to Democrats like Mr. Schumer. This is the bill that would strengthen the regulator's power to make sure the two giants stay solvent. What Fannie and Freddie really need is a regulator with the clout to cut up their credit cards before they get into even deeper trouble -- and take the rest of us along with them.
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