Normal Risk Assessments Need Not Apply

clipped from proteinwisdom.com And this was from a NYT editorial in 2003: The Bush administration is rightly pushing for the Treasury Department to regulate the two giants, along with the network of federal home loan banks. Freddie Mac and Fannie Mae provide financing to lenders by creating a secondary market for mortgages. All told, these two institutions’ debt portfolio exceeds more than $1.5 trillion. Their current regulator is ill equipped to keep tabs on Freddie’s and Fannie’s sophisticated hedging strategies and the other financial moves they use to manage their huge investments. Lax regulatory oversight of these companies is made more worrisome by confusion over the extent to which Uncle Sam backs them up. An ”implied guarantee” gives Freddie and Fannie a competitive advantage in the marketplace, part of which is passed on to home buyers. But there is a danger (remember the savings and loan crisis?) in having the marketplace complacently assume that normal risk assessments need not apply to these players.