The Evolution of a Policy Idea: How Restrictions on the Size of the Gses' Portfolios Became the Central Issue in Reform of Their Regulation

Networks Financial Institute Policy Brief, No. 2006-PB-03, March 2006

23 Pages Posted: 10 Aug 2006

See all articles by Peter J. Wallison

Peter J. Wallison

American Enterprise Institute (AEI)

Abstract

The portfolios of mortgages and mortgage-backed securities held by Fannie Mae and Freddie Mac have now become the central issue in the legislative battle over improvements in their regulation. But it was not always so. When the notion of improving their regulation was first advanced in 2000, the objective of those who favored tighter regulation was far more limited. Only after it was found that Freddie Mac had violated accounting rules did policy-makers - and particularly Fed chairman Alan Greenspan - begin to suggest that the only way to protect against the systemic risk associated with the GSEs was to limit, reduce or eliminate their portfolios of mortgages and mortgage-backed securities. If this approach is ultimately adopted by Congress, it will substantially reshape their business model and perhaps induce them to give up their government charters.

Keywords: government sponsored enterprises, government sponsored enterprises regulation

Suggested Citation

Wallison, Peter J., The Evolution of a Policy Idea: How Restrictions on the Size of the Gses' Portfolios Became the Central Issue in Reform of Their Regulation. Networks Financial Institute Policy Brief, No. 2006-PB-03, March 2006, Available at SSRN: https://ssrn.com/abstract=923571

Peter J. Wallison (Contact Author)

American Enterprise Institute (AEI) ( email )

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United States
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202-862-4875 (Fax)

HOME PAGE: http://www.aei.org/scholars/wallison.htm

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