Monday, May 02, 2005

Fannie and Freddie are Going to Collapse

Here is a link to an interesting paper presented by Dwight Jaffee at the American Enterprise Institute last week. As a Dow Jones wire story said about the paper

“Jaffee said the source of the systemic risk threat is the immense size of Fannie and Freddie debt and mortgage-backed securities outstanding in comparison with other components of the U.S. debt market.”

Essentially, Jaffe believes that Freddie Mac and Fannie Mae are subject to too much interest rate risk creating too much risk in the US financial system. Furthermore, he concludes that legislation should be passed that reduces the size of Fannie and Freddie’s mortgage portfolio.

Link to more Jaffee papers


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