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The conservatorships have also strikingly failed in relation to our fifth and final objective of producing long-term mortgage finance reform. As Treasury Secret

The conservatorships have also strikingly failed in relation to our fifth and final objective of producing long-term mortgage finance reform. As Treasury Secretary Henry Paulson wrote, “We described conservatorship as essentially a ‘time out,’ or a temporary holding period, while the government decided how to restructure the [government-sponsored enterprises].” However, starting the conservatorships turned out to be easier than ending them, and the “time out” has now stretched beyond its seventh year with no clear path to reform. What did the government expect? It's not like Fannie and Freddie are going to ask to be released from conservatorship and re-assume the risk that they are currently sharing with taxpayers. TARP, QE, bailouts, nationalization, and government conservatorships were all designed with the aim of preserving the status quo and keeping the system running on pre-recession paradigms. None of the organizations that benefit are going to voluntarily relinquish access to these crutches. Releasing the two GSE's would be a great test to see if the Fed and government's plan for reform and economic stability has really been effective.

lucozade 11y ago
> None of the organizations that benefit are going to voluntarily relinquish access to these crutches Except of course that that's exactly what most of them did. By taking preferred stock the treasury gave the banks an incentive to buy back the shares and make the treasury a bit of money on the side. Much better than the UK government buying common stock and being stuck with it till they sell at a loss (as they're doing now). My understanding of the GSEs is that they're still haggling over precisely what form they ought to take in the brave new world i.e. it's not particularly that they want to be state run.
- roymurdock 11y ago
  For the banks, the real crutch is the mental/precedence crutch of - buy back your equity and go back to running things as normal, and if the system fails we'll bail you out through nationalization yet again, so for now you can continue to operate under the taxpayer-shared-risk assumption. Using preferred stock was intelligent design in a micro level, but at a macro level the incentives and risk/reward profile constructed by the bailouts and liquidity injections is completely perverse.

lucozade 11y ago

> None of the organizations that benefit are going to voluntarily relinquish access to these crutches Except of course that that's exactly what most of them did. By taking preferred stock the treasury gave the banks an incentive to buy back the shares and make the treasury a bit of money on the side. Much better than the UK government buying common stock and being stuck with it till they sell at a loss (as they're doing now). My understanding of the GSEs is that they're still haggling over precisely what form they ought to take in the brave new world i.e. it's not particularly that they want to be state run.

roymurdock 11y ago
For the banks, the real crutch is the mental/precedence crutch of - buy back your equity and go back to running things as normal, and if the system fails we'll bail you out through nationalization yet again, so for now you can continue to operate under the taxpayer-shared-risk assumption. Using preferred stock was intelligent design in a micro level, but at a macro level the incentives and risk/reward profile constructed by the bailouts and liquidity injections is completely perverse.