Editor's note: This is Part 6 of a seven-part series. The Obama administration does not know what to do with Fannie Mae and Freddie Mac. While the mixed private/public model under which they had operated has been thoroughly discredited, and the agencies are now in a government conservatorship, they are critically important in today's market.Because there is a fear of rocking the boat, the issue of what to do with them going forward has been placed on hold. Such delay is a good thing if the time is used to get it right. In the long run, one of the agencies should be entrusted with developing a private secondary market to replace the one that collapsed during the crisis. In the short run, both agencies need to get on board with the government's policy of stimulating economic recovery. Developing a new private secondary market: As discussed last week, the new market should have the following major features: Firms issuing mortgage securities retain full liability for every ...
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