Last week we pointed out that the Basel committee's changes to the definition of regulatory capital that result in the inclusion of Fannie Mae and Freddie Mac obligations threaten to saddle us with a permanent government guarantee of those failed mortgage giants.
Our concern was mostly with the financial effects of the permanent guarantee. We think the government guarantee stifles market processes in a way that encourages risk taking by Fannie and Freddie and blinds them to market signals that would indicate when to become more cautious. And we think the dominance of Fannie and Freddie is stifling innovation in housing finance. Everyone keeps doing conforming mortgages, rather than innovating, because that's the only game in town.
Over at Seeking Alpha, Gary A. points out that even those who do not totally condemn the guarantees of Fannie and Freddie should be worried about this development out of Basel. The problem: it takes away the option of the US government to decide whether or not the guarantees are a good idea. It's an attack on American sovereignty.
From Seeking Alpha:
The way that they would do this would be to allow the big TBTF banks to buy massive amounts of GSE securities, and place them as part of the mandatory tier 2 capital. Once the banks were in this position, congress and the taxpayer would no longer have the choice to overturn the guarantees. Once the mortgage bonds were a part of tier two capital, any effort to overturn the guarantees would result in an immediate bank crisis.
It is my view that these shenanigans would result in more ponzi easy money loans, as the government guarantee would erase any fear of making a bad loan. And worse yet, this exposes Basel 3 and the central bankers as the threat to sovereignty. I have been screaming about this attack on national sovereignty by a conspiracy of international bankers for months and even years now. Few listen. If there was any doubt in anyone's mind that the conspiracy of the new economic order was real, they should never have those doubts ever again!
...The Tea Party is playing into the hands of these international bankers. They are, unless something changes, supporting Taxation without Representation, which is at the root of this Basel 3 push. The Tea Party wants to cut mainstreet spending which plays into the hands of the IMF and the international bankers. And one wonders if they realize that taxpayers will be on the hook for bailouts that they cannot ever reject, as Basel 3 intends to make the international financial system, as a whole, too big to ever fail.