Thursday, November 4, 2010

Government Issuers Should Use Best Structured Finance Disclosure Practices: Part II

Standard and Poor's published a report that indicates that the overhaul (bailout) of Fannie and Freddie could cost $685 billion.  This is a significant increase from the $400 billion that the US Treasury allocated for the bailout last year and the $200 billion that the agency overseeing Fannie and Freddie thought was necessary during the Bush Administration.

The fact is that without best structured finance reporting practices across Fannie and Freddie's entire book of business, no one knows the true dimensions of their current losses and the probable ultimate size of their bailout.  Without this, it is impossible for Congress to make a fully informed decision about what to do with them.

If Congress really wants to begin to address the issue of what to do with Fannie and Freddie, the starting point would be requiring that each organization report their entire book of business on an observable event basis to their regulators and for the securities they guarantee to all market participants.  This is technological feasible and would allow the Administration and Congress to get the answers to their questions.

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