John Carney, who blogs for the Wall Street Journal, isn’t a big fan of the idea of recapitalizing the GSEs.
It’s important to note there is no insurance-like feature allowing Fannie and Freddie to build capital. The income foregone by the government wouldn’t lower the likelihood of losses or the ultimate costs. It would simply move the cost to the certain present from the contingent future. That’s a bad deal for taxpayers.
Not to mention that this would effectively allow the companies to come back to life without an actual public policy decision being taken as to their fate or that of the mortgage-finance system. In effect, this would be a backdoor method of solidifying the status quo without addressing the flaws that led to the bailouts of Fannie and Freddie in the first place.Sponsor Content
The other claim in the paper, that the profit sweep imperils the financial system, is no more persuasive. Mr. Isaac, a former chairman of the Federal Deposit Insurance Corp and now a senior managing director at FTI Consulting, and Mr. Kerrey, a former U.S. Senator, claim continuation of the profit sweep will deter private investors from investing capital alongside the government to support future resolutions of troubled financial institutions.
Read the full post here.