Arnold Kling  

Two Good Sentences

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Via email, from John Hempton:


Frannie is a terribly inefficient way to generate subsidies for people in the 60th income percentile (ie very marginal home buyers). I am sure I could do better with cash and a helicopter and some census maps.

Most of the email was supporting my continued correction of James Kwak. This time, Kwak claimed that Freddie and Fannie do not take interest-rate risk because they issue mortgage securities. In fact, they hold the most of the securities in portfolio, and this portfolio creates an interest-risk management problem.


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MtgGeek writes:

The subsidy is the mis-pricing of the default risk, not the interest rate risk. And while the GSEs do hold a number of securities in portfolio, it is not most.

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