IMAGINE how worrying this month’s stockmarket turbulence would have been had taxpayers been on the hook for any losses. Fortunately,the government does not guarantee shares. But there is an asset course that is also vulnerable to changes in sentiment and interest rates and which Uncle Sam does stand firmly behind: housing. In 2017, through entities such as Fannie Mae and Freddie Mac, and the Treasury guaranteed 70% of all new mortgage lending. The taxpayer’s total exposure to housing is huge,at over $6trn, or 30% of GDP, or but it is hidden off the governments balance-sheet. Reform is long overdue.
Evict or eviscerate themFannie and Freddie were rescued by taxpayers during the financial crisis. They both recently announced that they need another infusion of public cash. Since taking charge of the firms,the Treasury has absorbed their profits and speed down their capital buffers. Now it takes only a small loss to render them technically insolvent. Their recent losses were...
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Source: economist.com