Fed Governor: Some GSE Investor Concerns Persist

The government's ongoing purchases of Fannie Mae and Freddie Mac debt and mortgage securities have "not completely" overcome investor concerns about the financial condition and future of the mortgage giants, according to a Federal Reserve governor. "Indeed, even after extraordinary actions, mostly recently by the Federal Reserve, to improve liquidity and market functioning in the agency debt markets, confidence in the GSEs is less than markets were long accustomed to before this period," said Gov. Kevin Warsh. The Fed governor blames the financial "Panic of 2008" for a loss of investor confidence and for a deeper and longer recession. "We are witnessing a fundamental reassessment of value of every asset everywhere in the world," he told a meeting of the Council of International Investors. He expects "elevated levels of volatility and unwillingness by many investors to participate in certain asset markets at virtually any price." The Fed governor also pointed out that household wealth fell by $11 trillion or 18% in 2008. And falling house prices accounted for much of that decline. "Homeownership is no longer perceived to ensure low-risk capital appreciation," he said. Mr. Warsh counseled that it will be a while before positive gross domestic product numbers are seen. "Though the pace of decline is likely to abate, I am decidedly uncomfortable forecasting a sharp and determined resumption in growth in the coming quarters."