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The Senate's financial regulatory reform bill was passed by the Senate on Thursday evening.  The devil will surely be in the details -- both with respect to how the reconciliation with the House of Representatives' similar bill (H.R. 4173) is worked out and then how the implementing regulations are developed by the Fed, the SEC, the FDIC, etc.

But there are 2 elephants in the room about whom there will be no details worked out: Fannie Mae and Freddie Mac.  Both bills are completely silent with respect to any reform of these two dominant entities in the residential mortgage secondary markets.  How anyone on Capitol Hill can claim that these bills represent "fundamental reform", when these 2 mortgage giants -- who will probably represent the largest net cost from the federal government's "bailouts" of the financial sector -- remain unaddressed, remains a deep mystery.

by Stijn Van Nieuwerburgh and Lawrence J. White

The financial regulatory reform bill that was recently proposed by Senate Banking Committee Christopher Dodd has a huge hole: It says nothing - absolutely nothing! - about Fannie Mae and Freddie Mac. These are the two investor-owned government-sponsored enterprises (GSEs) that currently are at the center of the residential mortgage markets in the United States. They are the two 900-pound (or $900-billion-in-assets) gorillas in the room that keep getting ignored.

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.