Bake us a cake as fast as you can. We're sure by now that you have seen the hasty deal between Fannie Mae, Freddie Mac and representative Richard Baker announced at the tail end of last week. As you may have known, Baker was threatening to make GSE reform issue numero uno post the elections. According to a recent study done by Goldman, Fannie and Freddie are set overtake the US government in debt outstanding by 2004-5. That of course assumes business as usual and mortgage credit growth in a linear fashion.
Nothing here is new.
The agreement between Fannie, Freddie and Baker may take the issue of GSE driven systemic risk off the political table for the next year or two, but it does nothing to change the real risk in the real financial markets. God help us if the illiquidity spreading like a cancer in the current fixed income markets ever blossoms in full force. Of course the ultimate safety net can be found right on your IRS Form 1040.