Replies to post #12658 on Fannie Mae Preferred S (FNMAS)

[Letgoofmyfannie]

UST doesn't have the juice to do either IMO, they are in court now and will be for a very long time if they don't find a way out of the blind alley they walked themselves into five years ago. They have a hard battle via that route if the won't pay up and make things nice.

[jwnoble3]

TSY and the FED are going to have a great deal of say in what happens to the GSEs...

For those who are interested. Good reading for a peek into the Feds playbook (Bernanke authored). This is part of the reason the MBS purchases have been so large in a non-conventional policy mode by our Fed. I suspect Yellen will follow closely as well.

http://www.federalreserve.gov/Pubs/FEDS/2004/200448/200448pap.pdf

It is a lengthy read, but well worth at least the salient points of what the economy is working through since 2007-2008. We are far from being in the clear.

My main point is that for the mechanics of QE to work the FED will need a Very large and VERY liquid MBS market to be in place.

[rosen62]

The Treasury has no legal authority to liquidate Fannie and Freddie. That authority has been granted by Congress to the FHFA via HERA 2008. It is FHFA who decides whether the route continues to be c-ship, r-ship or exit. And only under specific circumstances FHFA will claim receivership. I am not saying it cannot happen. Congress too can come out with a bill that includes a short receivership transition scheme prior to overhaul. Or Congress could amend HERA 08. What Treasury can do is to terminate its funding commitment and this will create a technical issue as the companies are under-capitalized. This, in my view, will be suicidal.