Fannie Mae-No Politics (FNMA)

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I must admit, I was shocked at Wallison's answer below regarding whether or not F&F should be allowed to exit from conservatorship. His previous writings appeared to indicate Gov harbored most, if not all of the blame. These are the conversations we SHOULD be having.

During the briefing, John Berlau, director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute (CEI), a free-market think tank, cited the recent Krimminger-Calabria paper to ask Wallison about the GSEs. Here’s our rough transcript of the exchange:

John Berlau: I wanted to ask a question about net worth sweep. Mark Calabria says that this leaves Fannie and Freddie with very little capital buffer, and that it violates HERA. Would it be better if they were taken out of conservatorship?

Peter Wallison: No, if we ever let them out of conservatorship, they would go back to the business that they were in before. I’m perfectly happy that government is taking all their profits, because it keeps them from gaining capital. If they had capital there would be tremendous pressure in Congress to release them. We have to come up with a new system, unfortunately we don’t know what such a system will look like. Once we come up with a new system, Fannie and Freddie will be gone.

Mr. Wallison’s response was interesting to us, because it almost sounds like his disdain for Fannie Mae and Freddie Mac would override his commitment to the rule of law. If true, that would be surprising, coming from a former White House Counsel for President Reagan.

William Isaac, a former chairman of the FDIC under President Reagan has written about this very dynamic, and about the importance of not subordinating the law to one’s personal beliefs about what should be done with Fannie and Freddie:

“There can be varied opinions over which reform is best for our country or what, if any, role Fannie and Freddie will have in a future housing market. But there should be no disagreement about the law. Capital follows the rule of law, and if investors can’t count on that in the U.S. and in the housing markets, they will put their money elsewhere.”

http://investorsunite.org/mr-wallisons-curious-view-of-the-rule-of-law/