Rent-Seekers Rejoice! Fannie-Freddie Privatization Urged in White House Report (Few Details, Numerous Roadblocks)

This is a syndicated repost courtesy of Online Course Notes For Financial Markets and Banking. To view original, click here. Reposted with permission.

Like the Star Wars film franchise (each worse than the other), now we have yet another “What do we do with Fannie Mae and Freddie Mac’ proposal, this one from The White House. Don’t look for specifics in the 132-page reorganization plan (it is for the entire Federal government (Fannie and Freddie are only on pages 75-77).  Government-Reform-and-Reorg-Plan

(Bloomberg) — White House proposes that Fannie Mae and Freddie Mac’s federal charter be removed and that the mortgage-finance giants be “fully” privatized, according to a copy of Trump administration’s reorganization plan released Thursday.

Privatizing companies would enable competitors, report says

Administration’s report also urges explicit mortgage-backed security guarantees for GSEs and any competitors

White House plan for Fannie and Freddie would require legislation by Congress
Fannie jumped as much as 6.8% on news to $1.58.

Fannie Mae’s preferred stock price is back down to $1.44 on the realization that Democrats will likely not cooperate. You see, Trump is suggesting abandoning Fannie and Freddie’s charters and that has to be done by Congress (but nothing surprises me anymore).

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Also, it doesn’t appear that Carson and HUD or Mnuchin and Treasury are in on the plan (although they may be). And what is REALLY surprising is that Cato’s Mark Calabria (VP Mike Pence’s Chief Economist) is on board with the lethal Federal government guarantee. On second thought, I don’t believe that Calabria is on board with a government guarantee.

“Administration’s report also urges explicit mortgage-backed security guarantees for GSEs and any competitors.” So if Citi and JP Morgan Chase called themselves competitors, they get an explicit government guarantee too??

The government guarantee is much desired by “rent seekers.”  An example of rent-seeking is when an entity lobbies the government for loan subsidies, grants or protection. These activities do not create any benefit for society but merely redistribute resources from the taxpayers to these entities.

But as I mentioned up front, Trump wants to eradicate Fannie and Freddie’s charters and that must be done by Congress. Good luck with that. President Trump!

So, all you rent seekers. Don’t get too excited. Yet.

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