By George Soros
Published: August 11 2008 19:21 | Last updated: August 11 2008 19:21
The recent compromise struck between the Treasury and Democrats in Congress on the fate of Fannie Mae and Freddie Mac, the government-sponsored mortgage guarantors, constitutes the worst of all possible worlds. The Treasury offered a blank cheque to come to the rescue, if necessary, but the managements of both companies were kept in place. They know that their survival depends on not drawing on that blank cheque. They will therefore do everything in their power to reduce the need for any new equity capital that would be dilutive. In short, as privately owned but undercapitalised financial institutions, the GSEs cannot fulfil their stated mission of providing stability, liquidity and affordability to the nation’s housing finance system.
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