Bond funds trading mortgage backed securities, which are in large part ultimately backed by the US taxpayer, don’t want the government backstop to go away.
Generally speaking we are for things being private and as far from the hand of government as is feasible. But right now some hedge funds are buying up preferred shares of Fannie Mae in hopes that the mortgage behemoths will be privatized. They are betting that the government will opt not to liquidate the entities but instead will seek private hands to take them over.
The article goes on to say that the bailout of Fannie Mae and Freddie Mac was good because it helped buoy the housing markets. It does say that the bailouts were not free of cost however because of the moral hazard the US government has enabled.
To buy or not to buy? New regs just muddy the water more.
Did I say wind down? No I meant expand! —The President comes up with a new scheme for bailing out underwater real estate investors and Wall Street firms stuck with “toxic assets.”
In yesterday’s New York Times Gretchen Morgenson examines the plight of Ed DeMarco who is the acting director of the Federal Housing Finance Committee. He has suffered the slings and arrows of many in Washington because he hasn’t forced Fannie and Freddie to write down principal for underwater homeowners. He says he has an obligation to the taxpayer not to do so. Barney Frank disagrees. (Others do too.)
The author makes the argument that such write downs actually constitute yet another bailout for the banks.
Tossing aside the fact that the US housing market is hopelessly (nearly?) manipulated by the government, one can say for sure that it shouldn’t be manipulated to pad Freddie Mac’s portfolio.
So the former CEO of Freddie Mac and the former CEO of Fannie Mae are to be sued by the SEC for lying about the vast amounts of subprime debt they had in their books. Great, sue them. But why are they being prosecuted civilly? Shouldn’t jail be in the equation?
Freddie Mac and Fannie Mae sent a total of 87 employees to party in Chicago at the Mortgage Bankers Association Conference. Freddie sponsored the event at the Platinum level with $80K in taxpayer money. Fannie was only a Gold sponsor spending $60K.