What We're Hearing

The GOP is trying to keep the heat on the White House regarding the future of Fannie Mae and Freddie Mac. In short, the party wants something done this year. Rep. Spencer Bachus, Republican of Alabama, said the other day that 45% of respondents to a recent GOP poll voted to have the GSEs cut from the budget. The statement that Bachus released was poorly written, but the message translates into this: voters say no more taxpayer money should go to Fannie and Freddie. To date, the two have cost the Treasury at least $145 billion and I would guess another $50 billion might be shelled out over the next eight quarters. (It's all guesswork on my part.) In short, no one knows how deep the hole is there. (And it doesn't help that the two are paying out dividends to Uncle Sam every quarter. It's sort of like moving government money from one pocket to the other.) But there is one academic question legislators need to ask: if you liquidate the GSEs today, selling all their assets at "market value" would you break even, lose money, or come out ahead? It's an unanswerable question. You can't liquidate Fannie and Freddie. How many buyers are there for $1.6 trillion in MBS and related assets? China, perhaps?..