Structurally Unsound

A housing bill's costs and contradictions LET'S START with the good news in the giant housing bill that has passed the House and appears bound for Senate approval and President Bush's signature. There may be no greater risk to the American financial system than that posed by the bloated balance sheets and thin capital reserves of Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) that dominate mortgage finance. The bill would address this through the immediate creation of a regulatory agency empowered to order increases in the GSEs' capital. Through the end of 2009, the regulator would work in consultation with the Federal Reserve Board, perhaps the only institution in Washington that can equal the GSEs in clout and expertise -- and which has long been skeptical of their public risk-private profit... [read full story]