R Street’s Pollock on jumpstart legislation, capital reserves for SIFIs

The podcast summarizes how to have realistic, fundamental reform of Fannie Mae and Freddie Mac. This requires having them pay a fair price for the de facto guarantee from the taxpayers on which they are utterly dependent, officially designating them as Systemically Important Financial Institutions (SIFIs) which they obviously are, and having Treasury exercise its warrants for 79.9% of their common stock. Given those three steps, when Fannie and Freddie reach the 10% Moment, which means economically they will have paid the Treasury a full 10% rate of return plus enough cash to retire the Treasury’s Senior Preferred Stock at par, Treasury should consider their Senior Preferred Stock retired. Then Fannie and Freddie could begin to accumulate retained earnings and begin building their capital in a sound and reformed context.

 

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