In the pages of the Wall Street Journal on Sunday, the former head of the Federal Deposit Insurance Corp., William Isaac,  takes the government to task on its virtual third-world, banana republic treatment of GSE investors.  

The FHFA as conservator is a fiduciary—or trustee—for the shareholders of Fannie and Freddie. Its job is to, as the law says, "conserve [the enterprises'] assets and property" for shareholders while Fannie and Freddie rebuild their capital base and eventually exit the conservatorship.

That's not what has happened. When presented with the once-unthinkable reality of Fannie and Freddie making enough money to retire the Treasury's senior preferred stock and build enough capital to meet their financial obligations without government assistance, the Obama administration moved in 2012 to confiscate all Fannie's and Freddie's profits and wind down the two mortgage giants. Investors in Fannie and Freddie have responded by suing in federal court.

Almost laughably, the government also argues against disclosure because that could "create market perception that the Enterprises are not financially viable," and that "this would have a negative impact on sales of debt and mortgage-backed securities." Putting aside the circularity of these arguments, the real absurdity is that the government's own activities have deprived Fannie and Freddie of capital and kept them too weak to emerge from conservatorship.


The opposite is happening in the handling of Fannie Mae and Freddie Mac. By defying and rewriting the terms of the conservatorship, and by keeping investors in the dark about FHFA's activities as conservator, the government is a destabilizing force, as evidenced by the dearth of private capital flowing into the mortgage market since the conservatorship began.

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