Monday morning Franniebacking

Four interesting things I've read this morning about the big renationalization Fanniefredderung:

From former Freddie Mac employee Arnold Kling:

If I were the czar of the mortgage market, I would attempt to bring back the 30-year amortizing fixed-rate mortgage with a 20 percent down payment. ... I think that a housing market that is based on mortgages with low down payments is inherently unstable. The buyer's equity comes almost entirely from house price appreciation. That means that in a rising market, everybody can buy a home. In a flat or falling market, nobody can buy a home. [note: Bob Shiller wants mortgages that are indexed to home prices. Such mortgages might adapt to this problem, but I would rather avoid the problem in the first place.]

From Calculated Risk:

The cost to taxpayers is ... very unclear. It is possible that taxpayers will not be negatively impacted in the long run. This depends heavily on the losses in the retained portfolios of Fannie and Freddie, and the cash flow from the good portion of the portfolio, and also on future defaults and house prices. Even if the Treasury has to purchase $50 billion or $100 billion in senior preferred shares to maintain the positive net worth of Fannie and Freddie, the Treasury will own the first equity in line to be paid off from future profits (assuming future profits).

From the FT's Tracy Alloway:

So Bill Gross's Pimco has got what he wanted - a bailout of Fannie/Freddie, all in the name of saving the world from financial meltdown.

Pimco is of course, loaded to the gills with GSE mortgage-backed securities and has been screaming for Treasury intervention, with heightening intensity, for months. ... Gross took a punt on MBS back in May — boosting it to about 61 per cent of his total holdings, all based on the US government's implicit guarantee of the mortgage giants. Had the bailout failed to materialise, Pimco would be in trouble.

From the WaPo's David Cho and Binyamin Appelbaum:

Among top Treasury officials, there is increasing interest in structuring Fannie and Freddie like public utilities, according to sources familiar with Treasury's thinking. Under this model, the companies would be able to raise private money by issuing stock, but shareholder returns would be capped by regulators.

Update: And how about this, from the FT's John Gapper:

One effect of the way the quasi-nationalisation is structured is that US institutions may well suffer more than foreign ones. In brief, it is good for overseas central banks and sovereign wealth funds but bad for US regional banks.

The exuberance in non-US markets this morning is a reflection of that fact. The government has had to step in to reassure foreign investors who have become huge buyers of agency debt, but has treated US equity holders harshly.