Gretchen Morgenson of the NY Times wrote a column on Fannie and Freddie last week. The column is basically advocacy for hedge fund speculators, not journalism. Since the conservatorship of Fannie and Freddie in 2008, hedge funds have invested in these firms’ stock and then sued the government to force a recapitalization and release back into the market. This despite the fact that the Treasury Department saved the firms and the housing market from oblivion, something no private investors were willing to do.
In the days following Trump’s Treasury Secretary nominee Steven Mnuchin’s comments favoring the hedge funds’ position, the firms’ stock prices rose sharply, and Ms. Morgenson then piled on. This is favoring terrible policy. These firms will remain dominant players in the mortgage market. If they are recapped and released, when the next crisis comes (more likely if the Dodd-Frank Act is weakened), the government will rescue them again because they will remain too big to fail. But these investors will have already made a killing.
I have written about this issue here and here. The best answer for taxpayers and mortgage borrowers, which has been endorsed by key experts, is to convert the companies to a government-owned corporation that will ensure fair mortgage access, control market risk, and take the upsides, as well as any downsides, of the market, which will be more stable under this structure. It will help prevent reckless lending. Morgenson has been wrong on housing finance issues before; she has contributed to the propaganda that housing policy caused the housing crisis, when the true causes were too little regulation and too much privatization. Her recommendation would not only enrich hedge funds, but will also lead us back to the wild west of the subprime era.