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Wall Street Whispers: Pink-Sheet Politics

Still, the reason Fannie and Freddie reform is so important is that the companies represent the largest government bailout to date, with more taxpayer funds sure to be required to plug their balance-sheet gaps. Furthermore, the government is using the two agencies as cogs in the housing-recovery plan to lower rates, force banks to take back poorly underwritten mortgages and sue Wall Street firms over securitization practices.

All of these are reasons why the futures of Fannie and Freddie are important to both taxpayers and investors: One is footing the bill, the other is trying to figure out whether banks will be able to earn as much money from housing finance and securitization as they had in the past.

But the fact that we're approaching the two-year anniversary of the government's takeover of Fannie Mae and Freddie Mac -- which were essentially bankrupt, or would have been by now without taxpayer support -- and no definitive plan or hint of a plan has been indicated is truly disturbing.

The Mortgage Bankers Association proposed a plan for Fannie and Freddie that isn't much different from its current form, as did the Center for American Progress, which is said to have Obama's ear more than other Capitol Hill think tanks. (Biggest change: Explicit guarantee on debt vs. implicit.)

Another panelist, Bert Ely, who has been involved in the financial industry for decades, used the discussion to promote his support of covered bonds. But unfortunately, the move from MBS to covered bonds would require so many things -- from investor comfort to an overhaul of the U.S. mortgage finance system -- that no other panelist could support covered bonds beyond a "component" of the U.S. housing finance system with slightly more influence than it once had.

Ann Schnare, a consultant on affordable housing, may have made the most dead-on remark of the session beside Diamond. Whatever the Obama administration and lawmakers use as their goals, the market will adapt to, eventually. But because of the politics of the Fannie-Freddie issue -- lawmakers will not only have to explain what the housing-finance giants do, but how they plan to change that -- Schnare doesn't expect a whole lot to change.

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