Mr. Paulson signaled that he wants to remake the U.S. housing-finance system in the longer term, ditching the "flawed business model" of government-sponsored enterprises like Fannie and Freddie. The Treasury plan limits the size of each company's mortgage portfolios to a maximum of $850 billion as of the end of 2009. (Fannie currently owns about $758 billion of mortgages and related securities, while Freddie's total is about $798 billion.) After that, the Treasury intends for the mortgage holdings to shrink about 10% a year until they reach about $250 billion at each company.
Give me utilitiy or give me something slightly better!
Who could have forecast that it would be under the Bush administration, which talked about restraining the growth of these behemoths, that they came to totally dominate the mortgage markets? Now the administration wants to have it both ways in that area as well. Fannie and Freddie are ordered to start shrinking - in 2010, after a new president will be in office. Until then, they are supposed to grow.
I don't think the Bush Administration will do a thing other than beg for more money and more money.
'Sworn to no party, and of no sect am I.' Frederick Vosper's republican motto.
This post by DeLong places Paulson as more independent of the Bush Administration:
This deal seems to me to be motivated by five things:
Paulson's desire to make sure that there is no way in hell that either Fannie or Freddie can ever be adjudged insolvent according to GAAP--which would trigger all kinds of bond-market unpleasantness.
Palson's desire to make sure that there is no way in hell that either Fannie or Freddie will wind up illiquid--out of cash.
Paulson's desire to make sure that there is no way in hell that Fannie Mae's and Freddie Mac's stockholders profit substantially out of this.
Paulson's desire to make sure that there is no way in hell that the CBO can calculate that this deal is likely to cost the government money--if CBO threatens to so conclude, he can always up the commitment fee.
Paulson's desire to keep the options open for his successor to shape the long-term debate about how to restructure these GSEs.
'Sworn to no party, and of no sect am I.' Frederick Vosper's republican motto.
I think it's worth remembering Paulson was appointed fairly late in the administration after Bush's ratings were through the floor. He is a former CEO of Goldman, and looks like a non-controversial technocrat appointment ala John Roberts on the Supreme Court, rather than the partisan specials we have become more familiar with at the Bush court. None of this is policy he set.
And now gets to be the best paid janitor in the Whitehouse, cleaning up the credit mess. He's not doing too bad. I'm a bit more critical of Bernanke because I think loose money exacerbated this whole crisis.
Give me utilitiy or give me something slightly better!
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