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Bernanke and Schumer, Listen Up!

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November 19, 2007 – Comments (0)

Lookie here, it costs a lot more to insure Fannie's mortgages today...

Fannie Mae's swaps rose almost 11 percent to 55.5 basis points, or $55,500 per year for five years to insure $10 million in debt, according to Markit Intraday.

Freddie Mac's swaps rose 9.5 percent to 54.82 basis points, Markit data showed. The swaps of both agencies traded around 27 basis points at the end of October.

Sooo, under Ben and Chucky's hare-brained, let-the-tax-payers-guarantee-the-million-dollar-mortgages-scheme, would this happen? Who would set the prices? Who would determine the risk and make sure that the taxpayers were appropriately compensated for being put on the hook?

The bean counters at Fannie -- who have already proven utterly untrustworthy? You want to let them preside over a clear conflict of interest?

How about some bureaucrat, subject to the whims of the regime that happens to be in power?

I have a crazy idea. Let the free market determine what the risk is, and what the right rates are!

Of course, that doesn't buy anyone votes during a time when the free market thinks securitized loans stink -- but at least the profit motive on both sides of the transaction would ensure that pricing was as efficient as possible. And, in the event it's wrong, the rest of us wouldn't have to foot the bill.

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