Ken Posner, author of of Stalking the Black Swan: Research and Decision Making in a World of Extreme Volatility, recently appeared on Yahoo Finance’s Tech Ticker to discuss among other things about how Fannie Mae and Freddie Mac continue to be a major drain on the economy. From the interview:
I don’t think it’s time to celebrate [because] the losses inside Fannie and Freddie can’t be calculated. Not only do we have those [CBO estimated] losses but we still have $5 trillion in mortgage-backed securities that they guarantee and $2 to $3 trillion in debt. All of this is potentially on the U.S. government’s balance sheet until we figure out how to restructure these entities.
Instead of dismantling Fannie and Freddie and putting the housing recovery at risk, Posner recommends auctioning the mortgage guarantee role to a group of large banks. “Make [banks] pay taxpayers for the right to issue those securities [and] let them do it with their deposits and shareholder equity.” In a recent article in American Banker, Posner also offered some solutions for how a combination of big banks and government could run the Mortgage-based-securities business in a way that would be both effective and politically palatable.
Here’s Posner’s appearance on Tech Ticker: