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Wednesday, August 9, 2017

Fannie, Freddie Fail Stress Tests

Fannie Mae and Freddie Mac could need upwards of $100 billion in bailout funds if faced with another financial crisis, according to the results of the GSEs’ Dodd-Frank Act stress tests. Under a “severely adverse” scenario that saw GDP fall 6.5 percent from its pre-recession peak and unemployment reaching 10 percent, Fannie and Freddie combined would require between $34.8 and $99.6 billion in Treasury funds, the Federal Housing Finance Agency said in its report.

The findings underscore the need for housing reform that would shift risk away from taxpayers, which ABA has long called for. The association earlier this year outlined nine principles for reforming Fannie and Freddie, with the goal of reducing the direct role of the federal government in mortgage finance, restoring private participation in housing markets and ensuring equitable access. ABA also testified at a recent Senate Banking Committee hearing on housing reform, and will continue to encourage further engagement on the issue on Capitol Hill when Congress returns in September. 

View the stress test results

1 comment:

gloria-lapiz said...

Money is borrowed – “levered” – to finance investment in new products, factories, roads , schools, research. Leverage by another name is debt. In a healthy economy debt should pay for growth that more than pays off the debt.
Debt should mean:
• New products, factories, and stores which return profits which pay off lenders.
• New roads help commerce which make more money, to pay more taxes, to pay off bonds.
• Educated citizens who grow up and earn higher wages, to pay more taxes, to redeem treasury securities.
So debt alone isn’t the question. The real question is what kind of investments has the debt been used for.
$152 trillion could have been used to: Build factories in India; Build schools in Pakistan; Bring clean water to Birkana Faso; Improve cattle herds in Chad; Educate Palestinian youths for better careers; Improve public health in Myanmar; Educate Children in Somalia; Give Syrian refugees a safe asylum; Rebuild Afghanistan; Agricultural research, Desalinization plants…
$152 trillion could have been invested in so many things that could have made the future more prosperous and a better world for our children.
The fear is that we may have spent $152 trillion on a handful of beans.
The United States has spent a large part of its debt on: SDI, “star wars”; A war on drugs; Two wars to destabilize the Middle East; and Tax breaks for the richest of the rich – which may have helped the DeLorean motorcar company, expensive jewelers, and sales of luxury homes, but produces little return on investment for the economy.
Samuelson (awkwardly the same name as the author of my freshman ECON text) only focusses on the gross numbers. I guess all debt is just debt.
expert at

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