New actions on the housing and financial crises—do no harm?

Tatom, John A. (2008): New actions on the housing and financial crises—do no harm? Published in: Research Buzz , Vol. 4, No. 6 (31 July 2008): pp. 1-5.

Abstract

On July 27, 2008, the U.S. Senate passed and sent on to the president the “Housing and Economic Recovery Act of 2008,” reportedly the most important hosing bill since the Great Depression. The bill was originally aimed at addressing the foreclosure crisis which began in late 2006 and became especially apparent in the financial crisis that emerged in August 2007. Its passage was accelerated by the near or real failures of Fannie Mae and Freddie Mac, the nation’s two largest government sponsored enterprises (GSEs), who play a central role in the functioning of the nation’s housing, mortgage and financial markets. It is unlikely that the new steps will have much effect on the foreclosure crisis or short-term economic performance, but they create serious uncertainty over the future of the GSEs, federal finance and the status and role of the U.S. financial markets. It is likely, however, that the new arrangements for Fannie Mae and Freddie Mac will not remain static for more than a few months and that newly authorized steps for the new regulator of the GSEs are likely to ramp up the discussion and need for regulation soon.

• Item Type: MPRA Paper
• Language: English
• Keywords: U.S. Housing Bill, GSE reform, foreclosure crisis, financial regulation
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation

References

Congressional Budget Office, “Congressional Budget Office Cost Estimate, H.R. 3221, Housing and Economic Recovery Act of 2008,” July 23, 2008. http://www.cbo.gov/ftpdocs/95xx/doc9597/hr3221.pdf.

Davis, Bob, Damian Paletta and Rebecca Smith, “Amid Turmoil, U.S. Turns Away from Decades of Deregulation,” New York Times, July 25, 2008.

Lehnert, Andreas, S. Wayne Passmore and Shane M. Sherlund, “GSEs, Mortgage Rates, and Secondary Market Activities,” Board of Governors of the Federal Reserve System FEDS Working Paper No. 2006-30, 2006, forthcoming in Real Estate Economics.

Passmore, Wayne, Shane M. Sherlund and Gillian Burgess , “The Effect of Housing Government-Sponsored Enterprises on Mortgage Rates,” Board of Governors of the Federal Reserve System FEDS Working Paper No.2005-06. 2005.

Poole, William P., “Too Big to Fail, Too Big to Survive,” New York Times, July, 27, 2008.

Summers, Lawrence, “The Way Forward,” Financial Times, July 28, 2008a.

_________ , “Notable & Quotable,” Wall Street Journal, comments on Fannie Mae from creativecapitalism.typepad.com, July 25, 2008b.

Tatom, John A., “The U.S. Foreclosure Crisis: A Two-Pronged Assault on the U.S. Economy,” Networks Financial Institute Working Paper 2008-WP-10, July 2008.

McCormick, Martha H. “A Race to the Top? U.S. Financial Regulatory Reform, as Envisioned by the Treasury Department,” Networks Financial Institute Research Buzz, July 2008. U.S. Department of Treasury, “Paulson Announces GSE Initiatives,” Press Release HP1079, July 13, 2008a. http://www.ustreas.gov/press/releases/hp1079.htm. _______ , “Fact Sheet: Treasury Releases Blueprint for a Stronger Regulatory Structure.” March 31. 2008b. http://www.treas.gov/press/releases/reports/Fact_Sheet_03.31.08.pdf. ________ , “Treasury Releases Blueprint for Stronger Regulatory Structure,” Press Release HP 896, March 31, 2008c. http://www.treas.gov/press/releases/hp896.htm.