Why John Snow and Alan Greenspan are trying to scare the mortgage markets.
By Daniel Gross
Posted Tuesday, March 16, 2004, at 9:55 AM PT
It's not every day that a treasury secretary intentionally tries to rattle the massive bond market. But that's what John Snow did last week. The treasury secretary
told a gathering of bankers that Fannie Mae and Freddie Mac, the
two government-sponsored enterprises that dominate the nation's mortgage markets, were not "too big to fail." Fannie and Freddie enjoy congressional charters, exemptions from state and local taxes, and access to Treasury credit lines, but they are otherwise regular companies. Investors are deluded if they believe the trillions in debt issued by GSEs come with an implicit or explicit government guarantee. "The reality is that the market treats the paper as if the government is backing it," he said. "We need to disabuse people of that perception. Investments in Fannie and Freddie are uninsured investments."
