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Buckley fannie maes vice president for communications

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Buckley, Fannie Mae’s vice president for communications, bluntly told the Wall Street Journal, ‘We’re not casual about managing our political risk’.” 5 This does not mean that some members of Congress and the leadership at the GSEs’ regulator didn’t try to rein in the GSEs; but the inadequate numbers of the former and the inadequate regulatory powers of the latter hindered these efforts – a condition that the GSEs lobbied strenuously to perpetuate. As just one illustration: In response to a 2004 Congressional bill that was aimed at enhanced regulation of Fannie and Freddie, with remarkable bravado, Fannie ran a television advertisement the day before the Senate Banking Committee was to work on the bill. 6 Fannie Mae -- created and supported by the government -- was now going after the government head-on. The monster was destroying its Frankenstein creator. Needless to say, the bill died. The advertisement shows a concerned Hispanic man. He says “Uh-oh,” and the wife responds, “What?” “It looks like Congress is talking about new regulations for Fannie Mae,” the man states. “Will that keep us from getting that lower mortgage rate?” the women replies. “Some economists say rates may go up” he says. “But that could mean we won’t be able to afford the new house,” says the woman. “I know,” the husband concludes. While Nader’s article makes clear how difficult it was for Washington DC to put constraints on Fannie Mae and Freddie Mac, the question remains: How did they grow so big? 1.4 Drowning in Debt With the deregulation of the mortgage finance market, the decade of the 1980s was a period of substantial growth for Fannie and Freddie. At the end of the decade, Fannie and Freddie were fundamentally entrenched as parallel GSEs, with similar structures, privileges, responsibilities, and limitations. The last major legislation to impact the GSEs until the financial crisis of 2007-2009 was the Federal Housing Enterprises Financial Safety and Soundness Act (FHEFSSA) of 1992. It produced a number of important rules, one in particular related to capital requirements. In particular, a risk-based capital regulatory regime was specified for Fannie and Freddie and their two main functions: (i) securitizing and guaranteeing the credit risk of MBS, and (ii) investing in MBS or other similar portfolios of mortgages. With respect to (i), the capital buffer that the GSEs were required to hold against these guarantees was 0.45% (i.e., 45 cents per $100
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21 of guaranteed mortgages), which implied that the Congress believed that residential mortgages were quite safe instruments to guarantee against credit risk – or that the Congress meant to subsidize these guarantees and was (if push came to shove) prepared to cover any losses. With respect to (ii), the GSEs were to hold 2.50% capital against their balance sheet assets (of which mortgages are by far the largest category). Thus, for every $100 in mortgages held, they could (in principle) fund those mortgages with $97.50 in debt and only $2.50 in equity.
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