Magazine article Independent Banker

Gse Reform-Take Two

Magazine article Independent Banker

Gse Reform-Take Two

Article excerpt

Privatization and securitization are still abuzz on Capitol Hill

There are things happening on the [Capitol] Hill and in the industry that could be very effective and destructive.

One, I'm hearing talk now that people want to get into the portfolio containment of Fannie Mae and Freddie Mac. That may sound good, but it's definitely a putting a lid, and an artificial lid, that may be applied at just the wrong times in the market.

I'm particularly disturbed that some people want to use the interest of cleaning up the problem with Fannie and Freddie to constrain and perhaps destroy Fannie and Freddie. Well, the word that I have for you is you're not going to destroy Fannie and Freddie, but you could cause them to privatize. And I think that would be disastrous.

If you could just think of two institutions like Freddie and Fannie that privatize, they'd start out as the second largest banking institution in the world. They would still have unlimited capacity to go to the market to get funds, and they could be the largest financial institution, not only in the United States, but literally worldwide in a very short period of time. And by merger consolidation and acquisition, they could end up being one of the huge institutions that we've all had nightmares about.

Now one of the things by keeping them under the present structure as a governmentsponsored enterprise, at least we would have a finger hole to make sure that they're functioning correctly, that they're performing and that their mission is correct. If we privatize them, government will be out of it, we'll have no control.

What we're talking about on the Hill now [regarding GSE reform] is significantly different than what we talked about 18 months ago. If you remember when the administration came to us, they were interested in putting the GSEs under Treasury. And that just literally drove me up the wall because I recognized that that would politicize the GSEs to such an extent that we'd go from administration to administration depending on who's in. …

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