Paul Volcker: 'It's Time To Regulate Money Market Funds And Get Rid Of Fannie & Freddie'

Volcker is right on both counts.  Fannie and Freddie have long since outgrown their mandate as they now guarantee more than half of all U.S. mortgages.  Just think about that for a minute.  The federal government, (meaning taxpayers - many of whom do not even own a home), is on the hook for losses at the GSEs that are quickly approaching half a trillion dollars.  And there is no end in sight for misery at Fannie and Freddie.

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Reprinted with permission

Reuters

Former Federal Reserve Chairman Paul Volcker is advocating for regulatory control over the money-market mutual fund industry and believes the government should stop financing mortgages.

Volcker said in a recent speech that money market funds have exacerbated stress in the financial markets because they pulled back on short-term lending to European banks.

If money-market funds are to continue providing significant funding to regulated banks, they should be subject to capital requirements, deposit insurance protection and stronger oversight of their investments, Volcker said.

"The time has clearly come to harness money market funds in a manner that recognizes both their structural importance in diverting funds from regulated banks and their destabilizing potential," Volcker said in a speech last month that was highlighted by The New York Times on Saturday.

The speech, titled "Three Years Later: Unfinished Business In Financial Reform," also criticized the government's role in the U.S. mortgage market through government-sponsored enterprises Fannie Mae and Freddie Mac.

Today, he noted, the U.S. residential mortgage market is almost entirely dependent on financial support from taxpayers. The federal government placed those entities into conservatorship in 2008 and has funded hundreds of billions of dollars' worth of losses on their mortgage portfolios.

"It is important that planning proceed now on the assumption that Government Sponsored Enterprises will no longer be a part of the structure of the market," Volcker said.

In his interview with the Times, Volcker acknowledged that it will take time to remove government support from the mortgage market, which is still struggling to repair itself, but said policymakers now have "an opportunity to get rid of institutions that shouldn't exist."

Volcker's opinions are highly regarded among some economists and regulators and he was a top adviser to President Barack Obama on financial regulatory reform.

But a measure he championed to restrict banks' ability to bet with their own capital, now known as the Volcker rule, has become a target for financial industry lobbyists seeking to blunt its impact on Wall Street profits.

(Reporting by Lauren Tara LaCapra in New York, editing by Maureen Bavdek)

Comments

[Kent Welton]

The " institution that shouldn't exist" is the private Fed. With our Treasury once again able to create money-credit we could make three percent home loans to all Americans, funded and serviced thru local banks without debt-based money, and forever escape the ruin and predation of Wall Street on the mostbasic and vital of economic and social institutions.... a stable home.