Fannie Mae-No Politics (FNMA)

[Robert from yahoo bd]

Why do you think that currently the UST has explicitly guaranteed $7T of MBS? I think the PSPA gives the gses up to a $200B backstop. The guarantee on MBS never was and never has been explicit. The market rightly recognizes that the government will come in and backstop the MBS market from collapse as they will the tbtf banks, but this guarantee is implicit. The Dodd Frank Act tries to through the living wills make future Government rescues unlikely through a good bank/bad bank scenario for the next inevitable financial crisis, but since most financial calamities start with entire financial industries engaging in rampant speculation and easy term borrower access, the entire industry goes down at once having crippling results for the economy and individuals.

I think your premise that there is a government guarantee in place with the PSPA and when the PSPA is gone there will be problems is misplaced because: (1) the gses have $50B in capital (2) everyone knows the government is not going to stand by and watch as the citizens suffer (3) they operated for 50 years with a $2B line of credit at UST which they NEVER used.