Future Retirement Success
  • Politics
  • Business
  • Investing
  • Stocks
  • Politics
  • Business
  • Investing
  • Stocks

Future Retirement Success

Investing

The Proper Way to End the GSE Experiment

by December 9, 2024
December 9, 2024
The Proper Way to End the GSE Experiment

Norbert Michel

Leading up to the 2024 presidential election, speculation escalated that a new Trump administration would try to get Fannie Mae and Freddie Mac out of government conservatorship. While it seems that the administration is moving in that direction, this new Politico story provides a glimpse at how difficult it will be to release Fannie and Freddie.

For those who don’t recall, in 2008 America’s largest government-sponsored enterprises (GSEs)—Fannie Mae and Freddie Mac—recorded combined net losses of $109 billion. That total surpassed the GSEs’ cumulative net income over the prior 40 years, and the federal government placed both GSEs in conservatorship, where they’ve remained ever since.

As Politico explains, some Republicans in Congress are exploring opportunities to release the GSEs as part of a deal that extends tax cuts in next year’s must-pass tax legislation. The idea seems simple because selling the government’s stake in the GSEs would raise money that could help “pay” for extending the tax cuts.

But it’s not so simple for multiple reasons.

First, the Congressional Budget Office (CBO) currently views the GSEs as part of the federal government, so releasing them removes a large asset from the federal books. At the very least, the CBO will have to account for whether ending the conservatorship increases or decreases the risk of future outlays for a possible bailout.

Perhaps worse, Congress might have to explicitly state whether the federal government officially stands behind the GSEs’ existing securities. Combined, these securities are worth nearly $7 trillion.

Another major problem is the liquidation preference. This feature of the conservatorship specifies that any funds derived from selling assets must first be used to compensate taxpayers for the bailout, and the GSEs cannot emerge from conservatorship without paying this liquidation preference in full. As former Federal Housing Finance Agency Director Ed DeMarco points out, this feature means that the GSEs would have to raise north of $300 billion to exit conservatorship.

Any reduction in the liquidation preference would be an additional bailout, so CBO will have to score it that way.

Regardless, there’s no lack of irony in these budget-related talks because Fannie Mae was created in 1968 to remove debt from the federal budget. (The Johnson Administration used the 1968 Housing and Urban Development Act to move Fannie’s debt off the federal books.)

The bottom line is that the GSEs have never been truly private companies, and the experiment with Fannie and Freddie has failed miserably. Congress and the Trump administration should craft a plan to release the companies, and any deal should avoid creating smaller versions of the GSEs under new names.

At a minimum, the plan should revoke Fannie and Freddie’s exemption from the requirements to register their securities offerings under the Securities Act of 1933 and provide teeth to the excessive use provisions in their charters.

None of this will be easy, but it is long past time for Congress to end the GSE experiment.

0
FacebookTwitterGoogle +Pinterest
previous post
Here is who is vying for power in Syria after the fall of Bashar al-Assad
next post
GOP senator questions FBI over reported Iranian hack attempt of Trump pick Kash Patel

You may also like

More than Just a Tax Cut: the Case...

October 30, 2024

Breaking Down Taiwan’s Arms Backlog, Part 1: Overview...

November 6, 2023

Research Shows Taxes Matter for Investment and Growth

November 9, 2023

Taiwan Arms Backlog, November 2024 Update: HIMARS Delivery...

December 13, 2024

A Different Perspective on “Climate Change and Globalization”

April 24, 2024

With $34 Trillion in Debt, House Budget Committee...

January 18, 2024

Cato’s Erec Smith: ‘DEI is Built Upon a...

March 25, 2024

Lesh v. United States Brief: The Supreme Court...

January 7, 2025

Taiwan Arms Backlog, December 2024 Update: Abrams Delivery...

January 14, 2025

DOGE Recommendations: Reform the Tax Treatment of Health...

December 16, 2024

    Get free access to all of the retirement secrets and income strategies from our experts! or Join The Exclusive Subscription Today And Get the Premium Articles Acess for Free

    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Recent Posts

    • TSA tells Americans their Costco cards won’t fly at airport security despite love for hot dogs

      June 7, 2025
    • Trump announces China will restart rare earth mineral shipments to US after productive call

      June 7, 2025
    • Musk feud presents ‘unprecedented’ dynamic compared to past Trump disputes: expert

      June 7, 2025
    • Snub of Musk’s NASA nominee ally preceded sudden ‘big, beautiful bill’ criticism, Trump feud

      June 6, 2025
    • Supreme Court rules DOGE can access Social Security information

      June 6, 2025
    • US sanctions money laundering network aiding Iran as regime faces nuclear reprimand at IAEA

      June 6, 2025

    Categories

    • Business (8,149)
    • Investing (2,019)
    • Politics (15,558)
    • Stocks (3,134)
    • About us
    • Privacy Policy
    • Terms & Conditions

    Disclaimer: futureretirementsuccess.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2025 futureretirementsuccess.com | All Rights Reserved