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The prospectus for every bond issued by these agencies explicitly states that it is not guaranteed by the United States. The housing market does not need Fanni
by gills 18y ago
The prospectus for every bond issued by these agencies explicitly states that it is not guaranteed by the United States.
The housing market does not need Fannie and Freddie. What it needs is a stable provider of liquidity (a broker for the secondary mortgage market). Let Fannie and Freddie fail, and simultaneously introduce an explicitly-backstopped liquidity mechanism/agency.
- etal 18y agoTrue. It's unclear exactly how the federal government "implicitly" backed Fannie and Freddie, besides occasional congressional meddling and the companies' history as GSEs, but other financial agencies and investors treated them as if they knew the government would step in if there was a problem -- and it turns out they were right.
- misterbwong 18y agoWhile this sounds good in theory, I get the feeling this is one of those easier-said-than-done situations. Even if there was a replacement liquidity provider ready to replace the two firms, letting them fail would cause a huge amount of stress for the market.