Wednesday, March 7, 2007

Fed Chairman asks Congress: Pretty Please with Freaking Sugar On It, Regulate Mortgage Lenders Better

The financial holdings (loans, mortgages) of mortgage giants Fannie Mae and Freddie Mac are considered by Fed Chairman Ben Bernanke as too risk and deserving of stronger regulation by the U.S government.

But wait a minute.
Aren't Fannie Mae and Freddie Mac both GSE's? Created by Congress, both ARE GSE's, Government-Sponsored Organizations, designed to pump money into the economy by buying up loans, securitizing them and selling them on the worldwide financial exchanges?

The fear is, if these two giants start catch a cold under the weight of risky mortgage loans, that the entire U.S. economy could get pneumonia and die.

And so here we are again. Those of you who remember the bailout of the U.S. savings and loan industry in the late 1980s, will be surprised to learn that we as a nation is chock full of amnesiacs. Government regulation of both Fannie Mae and Freddie Mac organizations has been frowned upon in the past, basically because the housing market has been considered integral to the overall growth of the U.S. economy.

But will tighter regulation by the new Congress of both GSE lending practices and financial holdings, impact the economy in other respects? Tightening the easy, no questions asked availability of loans for the real estate market - which is already reeling in most parts of the U.S.? What happens when you remove the financial grease from the economic skids?

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