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Bank Foxes Propose Running Henhouse

By
Real Estate Agent with HousingStorm.com

IMG00016Private investors have been afraid to touch mortgage-backed-securities (for anything remotely close to face value) because, well, they are smart. Those investments have been very very bad. The result is that the only provider of liquidity for mortgages has been Uncle Sam.

The Mortgage Bankers Association has a proposal to help bring private investors back to the table: selling bonds with EXPLICIT government guaranties against losses.

They propose eliminating Fannie and Freddie and replacing them with Mortgage Credit Guarantor Entities ("McGees"). McGees would buy loans and sell the bonds to investors. The bonds would be guaranteed by the goverment.

These new entities would be private companies (read: subsidiaries of the handful of big banks that run things now) and be regulated...probably by the Fed.fox-frame1

Breaking it down more simply, the bankers suggest the government allow them to sell government-guaranteed bonds to finance all the mortgages that they can sell. No risk for the bankers, but all the profits. No risk for bond investors, because profits are guaranteed.

There's no such thing as a free lunch, so...who get screwed here? Oh yeah, the taxpayers. And savers.

Once home prices bottom, mortgage-backed-securities will be attractive investments for investors. Until then, investors can expect to take huge losses. And, that's the tragedy of all of this: Private investors won't throw away their money, but politicians will happily throw away yours and mine.

This article originally appeared on HousingStorm.com

Comments(1)

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Greg Fielding
HousingStorm.com - Danville, CA

This is a good post...where is everybody?

Sep 24, 2009 10:55 AM