"Why Is an Implicit Guarantee to Fannie and Freddie More of an Issue than an Implicit Guarantee to Goldman Sachs and Citigroup?
Federal Reserve Board Chairman Ben Bernanke discussed alternative mechanisms for supporting the mortgage market other than the unlimited implicit guarantee that it had given to Fannie Mae and Freddie Mac.
While it is certainly reasonable to ask whether the government role in the mortgage market can be better structured, the government also has given an implicit (now largely explicit) guarantee to the creditors of all the major banks. Fannie Mae and Freddie Mac do not seem to hold any special status given current policy.
It would have been appropriate for the media to note the government's guarantee of debt at all major financial institutions (except Lehman Brothers) when discussing Bernanke's comments. Many readers might have been wrongly led to believe that the government's guarantee for Fannie and Freddie was the exception rather than the rule.
--Dean BakerMy main interest in this piece is that Dean Baker sees the implicit and explicit guarantees floating around our system. He might well disagree with me about whether they are a good thing or not, but at least he sees them and acknowledges them. As well, he does ask the right question that these guarantees raise: Why A and not B?