So now the challenge for the Administration is to sell this plan without looking like it is selling it. Timothy Geithner set expectations for a long process by saying that the Administration wanted legislation approved in two years. Huh? Nothing important (except extortion exercises like the TARP) gets passed in the months before a Presidential election. Early summer 2012 is the last viable window in this Congress. That’s a lot less than two years, according to my calendar. So more than 16 months is guaranteed to be more than two years. But the message from Geithner is to expect this to take a long time, and that is consistent with trying to build support for their preferred option, which is to create new mini-me GSEs that are made to look more palatable by having better balance sheet support.
The more official PR salvo came in the form of a front page New York Times article, “Without Loan Giants, 30-Year Mortgage May Fade Away.” The argument is that without a government guarantee, there would be no thirty year mortgage in the US.
That might actually be true, but the reasons why provide further proof that this proposal is just another example of throwing taxpayers under the bus to save the banks from suffering the consequences of their incompetence and criminality. We have gotten increasingly specific reports from mortgage investors that they aren’t buying residential mortgage bonds due to the lack of securitization reforms. We have further been told by an industry expert that investors are very worried about the chain of title issues that are leading to gridlock and more and more adverse decisions on standing issues in courthouses all over the US. The only reason they haven’t acted is that they fear applying more pressure on this front will ignite a new financial crisis.
So let us be VERY clear about this: this is GSE non-reform. It’s merely reconstituting the GSEs with better capital cushions but also a full faith and credit guarantee on their mortgages, which is a better backstop than Fannie and Freddie enjoy now. And the only compelling reason for continuing to offer government guaranteed mortgages is to escape exposing and cleaning up mortgage and securitization industry abuses.
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