While Joshua Gans agitates for an AussieMac (an equivalent of the American Fannie Mae and Fannie Mac) and the consequent socialization of the Australian mortgage market, James Grant argues the opposite, that the socialization of mortgages in the name of ensuring liquidity is skewing the market and ultimately a form of rent seeking by the banking industry. It also encourages politicians to deal with the issues by sweeping them under the carpet into the financial lending institutions with public money.
At this writing, the Federal Reserve, the ECB, and the Bank of England are taking extraordinary measures to accommodate the demand for liquidity from the institutions that couldn't seem "to learn the difference between a Mortgage and a Bill of Exchange," or between a triple-A corporate bond and a triple-A mortgage, which is a slightly different kind of confusion. To bail out these slow learners, the central banks are lending government securities against the inherently illiquid mortgage collateral that never had a place on the balance sheet of a properly run monetary institution in the first place. In fact, in Hankey's day, it was a breach of good form for a central bank even to acquire government securities (the preferred assets were commercial loans, foreign exchange, and gold). How far the world has come: Gold, the most liquid of monetary assets, today is officially demonetized, whereas mortgages, the least liquid of banking assets, are now -- all of a sudden, because there seems to be no choice -- being embraced, or, at least, tolerated. Certainly, they are being monetized.The problem is that the financial markets and institutions have not faced economic retribution for their risk taking. Part of this is because central banks have been constantly bailing them out by dropping interest rates or sweeping the horrors of the banking industries incompetence under the carpet through social institutions such as the lending window and Fannie Mac/Mae. Australia has a high level of home ownership already, I do not believe that a centralised and politically controlled government institution is necessary for the mortgage market even with the potential challenges facing the world lending market through bad policy and practice by banks, central banks and politicians.
