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Millstein: Here’s How to Revamp Fannie, Freddie

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  • William Matz | | 23 Oct 2012, 12:55 PM Agree 0
    The AIG restructure has shown impressive results so far, much more so than GM. But FNMA/FHLMC are quite different.

    One of the major problems has been the political manipulation of F/F, well documented in Morgenson's/Rosner's book, "Reckless Endangerment". The compromise of F/F financial soundness in the ostensible pursuit of higher rates of home ownership (the real goal of which was maximizing bonuses for F/F execs) meant that F/F was not operated under sound business principles. That created a vulnerability to the subprime meltdown that otherwise would have been minimized. (Note that F/F defaults were still only a fraction of default rates for other mortgages.) So the key to F/F viability may well be whether they can go forward with a sound business model, uncoupled from the politics. That may be quite difficult.
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