Fed takeover of Fannie and Freddie may last a generation

The obvious hit me last night.

I expect that the Fed is going to take control of Fannie and Freddie.

Some speculated that the Fed could eventually - in years - cut up the two mammoths and sell off the parts.

No way!

1. Bureaucracies don’t voluntarily give up power.
2. Controlling Fannie and Freddie would give the Fed one helluva a nice and shiny, new tool for its toolbox.

For example, if the U.S. had a replay of the 2004 housing market, the Fed could change policies at Fannie and Freddie to take the wind out of the housing sector while keeping interest rates low for the rest of the economy.

That is, the Fed wouldn’t have to use a sledgehammer on the entire U.S. economy (high interest rates) when it just wanted to slow down the housing sector.

And in times like now when the housing sector needs an extra push, perhaps the Fed could devise policies to stimulate the housing sector without causing general inflation.

The Fed could conceivably do to housing bubbles what its done to recessions - make them fewer and smaller.