Now I’m really feeling "good" about the government’s plan to regulate financial firms….
by Tom on March 29, 2008
in Uncategorized
Buried way back on page 14 of 15 in the New York Times article on the proposal is this beauty….
Finally, some consideration should focus on including GSEs within the traditional prudential regulatory framework. Given the market misperception that the federal government stands behind the GSEs’ obligations, one implication of the optimal structure is that PFRA should not regulate the GSEs. Nonetheless, given that the federal government has charged the GSEs with a specific mission, some type of prudential regulation would be necessary to ensure that they can accomplish that mission. To address these challenging issues, in the near term, a separate regulator should conduct prudential oversight of the GSEs and the market stability regulator should have the same ability to evaluate the GSEs as it has for other federally chartered institutions.
Is the Fed really saying that the markets belief that the government is standing behind Fannie and Freddie is a misperception? If so, given the current state of Fannie and Freddie’s finances, it’s going to be a really rocky road ahead…….
