The treasury just released their report and it misses the most important idea completely, which is that the taxpayer can never be a back stop to the mortgage business. Private markets are completely capable of securitizing loans and it was Fannie`s misguided attempt to keep market share, when all their models said pull out, that exacerbated the real estate bubble. William Ackman`s idea of converting a significant portion of Fannie`s debt to equity would speed privatizing to a matter of a year and not the expected decade of the report. Another idea not mentioned is that mortgage issuers retain the 1st 10% of risk of loans sold to those who bundle the loans into securities. This feature would improve the quality of the loan`s underwriting, documentation and freedom from fraud more reliably than a micro managed regulatory approach.
Have no fear that these points are just too simple for the administration and Congress to fathom. Complexity, fairness, influence and perverse Washington group think will keep the GSE`s festering forever. In the meantime it will take a century before Wall Street can hoodwink German banker`s into shoddy Detroit slum based product again. If I were a Swiss or German Banker I`d drop the phone at the first mention of the caller`s assertion of a Wall Street connection.
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