Friday, February 18, 2005

Greenspan Warns : "Unlimited Access To Capital" reports that Fed Chairman Alan Greenspan raised the spector of "systemic risk" in testimony to congress. He is once again speaking about the two GSEs, Fannie Mae and Freddie Mac. The risks of something going wrong "are almost inevitable" Greenspan said.

He suggested the two mortgage giants be forced to reduce their portfolios in order to prevent unspecified "problems". "It is the time to act to fend off the problems that are almost inevitable" he said, injecting a sense of urgency to the situation.

"Greenspan also noted that Fannie and Freddie both have unlimited access to capital far below normal market rates, giving them unlimited growth prospects. Since the two have very low regulatory capital requirements, the companies have to "engage in very significant dynamic hedging to hedge interest rate risks," he said. Their role in creating the housing bubble has been clear. Maybe the Fed is looking to blame a coming crash on the GSE's and therefore congress.


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