Comments on: "Capitalism Isn’t Perfect" (Federal Support to Mortgage Lenders Edition)

By: Anonymous

Anonymous — Tue, 13 Nov 2007 14:30:00 +0000

What would the Real Estate market be without the GSE’s buying conforming loans? It appears that in real time there is no market for mortgage debt beyond the walls of gov’t.

By: dearieme

dearieme — Tue, 13 Nov 2007 12:52:00 +0000

I suppose that a new President will be able to say that she much regrets that people had persuaded themselves of Fed back-up, but that responsibility for that misunderstanding must lie with the previous administration.

By: Anonymous

Anonymous — Tue, 13 Nov 2007 11:33:00 +0000

Thank you for highlighting the uder-the-radar FHLB issue, Yves.

I saw the Bloomberg article recently, courtesy of someone at CalculatedRisk, I think, and it prompted me to find a paper on FHLBs in the Atlanta Fed Review, here.
Pretty good paper overall. I wish it talked more about the implications of the structure of membership at each bank, with a dominant clique of national/big regionals doing much of the borrowing. But they did highlight such recent trends as the extension of member banks into FHLBs outside their home regions, by way of national mergers. With the predictably weak central supervision of the Federal Housing Finance Board, it becomes possible for individual banks to get quite out of hand before anyone notices.

It really gives one a bad feeling ...

By: a

Tue, 13 Nov 2007 08:55:00 +0000

Truly scandalous. The taxpayer will be on the hook for tens of billions. Using “AAA” ratings as the test for collateral is a set-up for disaster, since you can go from “AAA” to junk in a blink of an eye.

But what does “the ties to the government suggest the U.S. will bail them out…” mean? Is this like the Fannies, where the market believes in the too-big-to-fail model, but where the government has been reasonably clear it does not intend to bail them out?