GSE reform clears the first hurdle
Even if catastrophe is a necessary precondition to reform, sometimes it’s a long way between them. But in terms of GSE reform (and the Fannie Mae story), Congress recently took an important step.
Over the first one
As the Washington Post reported:
Long-running efforts to tighten oversight of Fannie Mae and Freddie Mac took a step forward yesterday [
Part of why government moves so much more slowly than markets is its sequentiality: things happen one by one, with each step ponderously debated. Though the Committee action sounds significant, it’s a long road:
- Pass House Committee. Check.
- Pass Full House
- Pass Senate Committee
- Pass Full Senate
- Emerge from House-Senate Conference
- Pass both House and Senate
- Signed by the President
Or enactment, anyway
This first step is also the easiest:
Hey, I haven’t fallen over yet!
Still, it garnered a very healthy majority.
The measure passed the Financial Services Committee by a vote of 45 to 19, with more than a dozen Republicans joining the Democratic majority.
House committee chair Barney Frank was understandably bullish:
After the vote the committee chairman, Barney Frank (D-Mass.), said, “Something very close to this bill is likely to become law.”
From your lips to God’s ears, Mr. Frank, but remember the past:
The House passed a version of the bill [Step 2 above] in 2005, and the Senate Banking Committee passed legislation in 2004 [Step 3 above], but the full Senate has not acted.
Twice before, in other words, legislation had advanced out of the House. Twice before it had failed without ever reaching a Senate floor vote. Why then is Barney smiling?
Trust me, that’s what Mr. Frank’s smile looks like
Frank said the outlook has changed because, unlike the earlier House bill, the one approved by the committee yesterday is supported by the Treasury Department, and Democrats now have a majority in the Senate.
If Treasury speaks for the Administration Step 7], and the Democrats can deliver the Senate [Step 4], then Mr. Frank’s optimism will be validated.
As part of a compromise between Frank and the Treasury Department late last year, the current bill would give more power to the regulator than the earlier House bill, and it would eliminate presidential appointees to the companies’ boards, putting more distance between them and the government.
This is Lieutenant Commander Scott, regulating your sorry selves
Strengthening the regulator would be wise, as urged by many observers including former Fed Chairman Alan Greenspan in Greenspan’s last testament; otherwise Fannie Mae and Freddie Mac can jack up their profits by Turbocharging the balance sheet, which inherently puts taxpayers at greater risk, as I posted in What now?
From that regulator to this, in one easy statute?
Chartered by the government to promote home ownership, Fannie Mae and Freddie Mac buy mortgages from lenders, which then have more money to make loans. The companies also package mortgages into securities for sale to investors, and they guarantee to compensate the investors for any interest or principal payments the borrowers fail to make. They are able to borrow money at favorable rates, in part because the financial markets believe that the U.S. government would prop them up in a crisis, analysts say.
Together, Fannie Mae and Freddie Mac have debts and outstanding credit guarantees of $5.2 trillion, more than the government’s $4.9 trillion in publicly held debt.
They borrow more than the
With you folks in charge, I feel all better now
The bill approved yesterday by the House committee would give regulators the power to
· Put the two companies into receivership
· Limit their mortgage investments
· Block new products
· Require them to hold additional capital as a cushion against financial trouble. [To bring them up to the levels of every other financial institution in the country. — Ed.] Requiring additional capital could reduce profits. [So could all the others! — Ed.]
All of these are worthwhile steps, long overdue ever since
The biggest point of contention in the committee was creating an affordable housing fund potentially worth $500 million a year, and deciding who should control it.
It totally amazes me that, of all the issues, this would be the sticking point.
No, this isn’t your humble blogger, but it might as well have been
The reason was it rapidly became partisan:
Democrats said the fund would provide housing for people in need and force the companies to give back more to the public.
Let’s see how you score
True!
Let’s hope it doesn’t have to go that far
Frank said there was no question that Fannie Mae and Freddie Mac benefit [Billions’ worth every year — Ed.] from their government-sponsored status,
Also true!
I’ll affirm this even at gunpoint
and “over the years the public has not received sufficient value” in return.
Most people think this is true. For Mr. Frank to add his voice is very significant.
Republicans said the fund could foster wasteful bureaucracy,
Wasteful with the moneys from the fund thus created; not costing the taxpayers.
increase mortgage costs for middle-class home buyers,
False? I absolutely cannot figure out this argument.
and channel money to groups with partisan agendas.
Very likely true! L and a problem, and a risk, unless there proves to be any truth to Fannie Mae’s remarkable rumor.
You say it’s an AHI exclusive?
