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Nooooo…not Fannie and Freddie
I know that the government already leaked the plan, but seeing it actually launched I can’t help but feel a little despair that the Obama Administration continues to use Fannie and Freddie to implement new housing policy. I wrote a column when the idea was first floated to help state and local housing agencies access financing.
Simply, all things Fannie and Freddie at this point – more than a year into the conservatorship – should be squarely focused on sorting out what exactly they’re suppose to be. It seems absurd that they continue to operate in limbo given their enormous role in the housing market and credit markets. Either nationalize them, privatize them or unwind them, but don’t give them new tasks to perform.
If housing agencies need financing, then give them a grant or backstop their municipal debt. It’s more honest and efficient than the mind bending program launched today.
From Reuters:
The Treasury said it will purchase securities issued by Fannie and Freddie that are backed by new mortgage revenue bonds from the housing state and local housing agencies (HFAs). Treasury said the bond program can support “several hundred thousand” new mortgages for first-time homebuyers in the coming year, as well as refinancing “at risk” borrowers into more affordable loans.
Money market funds and California RANs
There’s one group of investors that aren’t likely to jump at the chance to buy California’s short-term RAN notes when they go on sale later this week: money market funds.
The notes are expected to carry a second tier rating of MIG 2, a notch below the top rating of MIG 1. That’s problematic for money market fund managers who are staring at the SEC’s proposal to limit money fund investments to short-term debt rated only the very best.
California debt rush
Talk about a comeback. After a bruising budget fight that forced it to issue IOUs, California plans to sell as much as $10.5 billion in short-term debt later this month.
A reach for yield should trump lingering doubts about the state’s prospects among the small and large investors who are expected to snap up the revenue anticipation notes.
California dreams shouldn’t include the federal government
Don’t underestimate the power of California, and its ability to suck in a reluctant federal government to bail it out of a fiscal mess of its own making.
But the Obama administration and Congress should resist.
Not only is the federal government shouldering the already heavy burden of sorting out the auto and banking industries, the housing giants Fannie Mae and Freddie Mac and the
hard-to-get-rid-of American International Group, but such action would undermine the state’s need to revamp what has become an ungovernable system built on gerrymandering, ill-conceived tax schemes like Proposition 13 and unrealistic restraints like needing a two-thirds majority to pass a budget.
California faces its moment of truth
The California budget impasse comes to a head one way or the other this week, with state lawmakers needing to make nice by June 30 to close a $24 billion budget gap. If they don’t, rating agencies have threatened to downgrade the state’s credit ratings.
California’s Comptroller said he would begin handing out IOUs on July 2 and the Treasurer said the state will draw on reserves to service the debt of all economic recovery bonds on July 1. (These bonds were created in 2004, when voters gave the state government the authority to raise $15 billion through bond issuance to plug another budget deficit.)
California stares at possible ratings downgrade
It was only a matter of time before another ratings agency weighed in to warn that California could see its rating slashed if it doesn’t get its fiscal house in order soon. Moody’s Investors Service said that the state’s rating could be put on the chopping block for multiple downgrades.
It’s unlikely that California, among the biggest issuers of municipal debt, would be shut out of credit markets should its ratings slide further, but it would face steeper financing costs at a time when it’s running out of precious cash.
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The Wall
