The bulk of its lead editorialtouting the prospects for bipartisanship is focused on pushing the Johnson-Crapo bill, a measure that would replace Fannie Mae and Freddie Mac with a system whereby the government guarantees 90 percent of the value of privately issued mortgage backed securities (MBS). This means that Goldman Sachs, Citigroup and other folks who might issue MBS could now tell their customers that even in a worst case scenario they couldn't lose more than 10 percent of the value of their securities.
Fans of the market should be asking two questions here. What problem is this intended to solve? And why do private issuers need a government guarantee?
More moral hazard and perverse incentives in FIRE.
Washington Post Pushes for Government Guaranteed Subprime Mortgage Backed Securities
Dean Baker
