Credit Markets: March 2010 Archives

Fannie & Freddie - Where's the Outrage?

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by Matthew Richardson

Recently, the government sponsored enterprises, Fannie Mae and Freddie Mac, announced new losses, bringing the total tally to $126 billion. It barely registered as news. There is a chance, not a great chance, but a chance nonetheless, that the support thrown at the banks is not all money down the drain. But the chances are slim to none that either Fannie or Freddie will be able to pay back the funds. It is highly likely that taxpayers will lose well over $2000 billion and it may well pass $300 billion. When the history of the crisis is all written, these institutions will turn out to be the most costly of the financial sector, and this sector includes A.I.G., Citigroup and Bank of America/Merrill Lynch.

Why are the GSEs so costly? Why aren't people up in arms? In a recent op-ed in the NY Post, I offer some possibilities. See the following link:

http://www.nypost.com/p/news/opinion/opedcolumnists/fannie_freddie_the_biggest_bailout_rAyIYVNxCGXc4UrUntXkCK

You can also view my interview on FOX Business Network on the same subject.

The Future of Securitization

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by Joshua Ronen and Marti Subrahmanyam

The recently proposed Senate Banking Committee bill requires ". . . any securitizer to retain an economic interest in a material portion of the credit risk for any asset that the securitizer . . . transfers, sales, or conveys to a third party" without the ability of hedging the retained interest. The retained interest is generally required to be at least 5% of the credit risk of the transferred assets with few exceptions. A somewhat similar provision is contained in the House Bill. How will this requirement affect the access to loans by consumers and investors?

About RegulatingWallStreet.com

The Dodd-Frank Act, signed into law in July 2010, represented the most significant and controversial overhaul of the U.S. financial regulatory system since the Great Depression. Forty NYU Stern faculty, including editors Viral V. Acharya, Thomas F. Cooley, Matthew P. Richardson, and Ingo Walter, provide a definitive analysis of the Act, expose key flaws and propose solutions to inform the rules’ adoption by regulators, in a new book, Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance (Wiley, November 2010).

About Restoring Financial Stability

Previously, many of these faculty developed 18 independent policy papers offering market-focused solutions to the financial crisis, which were published in a book, Restoring Financial Stability: How to Repair a Failed System (Wiley, March 2009).

About the Authors