Fannie Mae (FNMA)

[contrarian bull]

That makes a lot of sense (not)-- they claim the reforms are designed so that no one company is too big to fail - and they propose we do this by making big banks larger and playing an even more key role in the housing finance system. These actions obviously will make big banks even more too big to fail going forward.

You hear over and over about how the "Too Big To Fail" banks were bailed out. But really - none of them were too big to let fail. It was the domino effect they were worried about. If one fell, the rest would follow as the market priced their assets down.

So now they talk about adding many others the market the GSE's play in. From the article:

Some housing-finance experts disagree on the need for competition. Having rivals to Fannie and Freddie could even be counterproductive, said Andrew Davidson, president of a New York-based consulting firm that bears his name.

One issue, Davidson said, is that mortgage financiers often don’t face losses from bad decisions until a downturn, which can occur years after a loan is made. That could lead to a “race to the bottom,” as firms attempt to outdo each other for business, and if a severe downturn struck, many companies would come under pressure at once, potentially leading to bailouts anyway, he said.

So now we have many banks taking on much riskier loans than F&F do... in the next downturn there will be too many banks at risk of failure to not bail them out. So the problem just gets worse.

What congress seems to overlook is the fact that everything worked perfectly during the crash of 2008. The government gave them a backstop - then got paid back with a profit. Why would the government want it to be any different in the next crash?