Fed Up With Fannie AndFreddie

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ST. LOUIS - (01/17/05) -- The Federal Reserve continued itssalvo against Fannie Mae and Freddie Mac last week with thepresident of the Federal Reserve Bank of St. Louis calling for theprivatization of the two government sponsored enterprises. Theremarks by William Poole cam the day after the Fed releasedseparate studies showing the government benefits provided thesecondary mortgage market giants mainly benefited shareholders andnot homeowners; and that market making activity by the two didlittle to calm the huge mortgage securities markets. "My preferredstrategy would be to transition these firms to fully privatestatus, and have them more in the situation of GE Capital, which isnot regulated by a federal agency," said the St. Louis FedPresident. Poole said he would raise the companies' capitalrequirements to the equivalent of banks' and then end thecompanies' ties to government. Markets would then be the arbitersof adequate capital for the companies. "I would like the market tomake that judgment, quite frankly," Poole said. The Fed's assaulton Fannie and Freddie comes as Congress is preparing to open debateon a new regulatory scheme for the secondary mortgage market,including another government sponsored housing enterprise, theFederal Home Loan Bank System.

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