Political analysts believe investors such as Kao disregard political reality. The fact is Fannie Mae and Freddie Mac are political poison in Washington.
"The possibility of truly privatizing them isn't there," says Lawrence White, professor of economics at NYU's Stern School of Business and author of Guaranteed to Fail: Fannie Mae, Freddie Mac and the Debacle of Mortgage Finance .
Fannie and Freddie were once credible institutions with great human capital but all of that has gone now, he says. That ship has sailed. The blow to their reputations has been too great for either agencies to exist as their former selves.
And policymakers are very mindful of ensuring that the old model does not resurface. "We cannot allow a plan to become law that simply puts Fannie and Freddie in the federal witness protection program, gives them cosmetic surgery and new identities, then releases them upon an unsuspecting public," Hensarling said in a recent speech.Still, GSE reform could be years in the making. White expects inertia will keep the government from moving ahead on reform. The companies are making profit, mortgages are being originated, the government is seeing a lower deficit thanks to the agencies. No one is in any hurry to do anything. Kao remains hopeful. "At some point politicians will see they are destroying huge value just to make a point. Politicians can talk tough but do they have the fortitude to cause an implosion in the market by stripping away the GSEs?" So that's where we are five years after bailing out Fannie and Freddie. Everybody still hates them. But no one is sure if we can live without them. -- Written by Shanthi Bharatwaj in New York. >Contact by Email. Follow @shavenk
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV