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Wall Street Whispers: Fannie, Freddie Are Liquidating (Kind Of)

Finally, while the chorus of conservatives demanding the liquidation of Fannie and Freddie grows ever louder, lawmakers might want to consider that the process is already occurring. Rep. Spencer Bachus (R., Ala.), the likely successor to House Financial Services Committee Chairman Barney Frank (D., Mass.), became the latest high-profile lawmaker on Wednesday to say he'd like to see the two firms liquidated. Bachus joins other Republicans like Sen. Richard Shelby, ranking member of the Senate Banking Committee, Sen. John McCain (R., Ariz.), Sen. Jud Gregg (R., N.H.), Sen. Orrin Hatch (R., Utah) and Rep. Jeb Hensarling (R., Texas), who have been banging the drums against Fannie and Freddie since financial-reform proceedings were under way.

They seem to be rallying on a point where there's little disagreement.

Since a housing-finance reform conference in August, top guns in Obama administration have signaled a desire to liquidate the two firms and start from scratch as well. Even longtime Fannie-Freddie cheerleader Rep. Barney Frank (D., Mass.) said he thought the two firms ought to be "abolished" in a television interview a few months ago.

"I think they should be abolished," Frank said on the Fox Business Network in August. "The only question is what do you put in their place. This is a situation where given the importance they had come to play in housing, you can't tear down the old jail until you build a new one."

If not for Fannie and Freddie's crucial role in the housing market - and the absence of other, private-market liquidity providers - the process of dismantling the two firms might already be well under way. It is likely to accelerate in the coming years, once a comprehensive reform plan is on the table and buyback demands have abated. But the point of "conservatorship" is just that - conserving assets of a company until a decision is made about the future of the GSEs.

-- Written by Lauren Tara LaCapra in New York.



>To contact the writer of this article, click here: Lauren Tara LaCapra.

>To follow the writer on Twitter, go to http://twitter.com/laurenlacapra.

>To submit a news tip, send an email to: tips@thestreet.com.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.
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