Per Wikipedia, a GSE is "a privately-owned corporation authorized to make loans and loan guarantees. It is not backed or funded by the U.S. government, nor do the securities it issues benefit from any explicit government guarantee or protection...there is a wide misperception that these notes carry an implied government guarantee, and the vast majority of investors believe that the government would prevent them from defaulting on their debt."
With respect to the GSE’s; my understanding is they have always had a lower cost of capital due to the “implied” guarantee of their bonds by the federal government. There is no statutory guarantee. So the way I see it, the GSE bonds aren’t going to be bailed out either.
Ironically, the biggest buyers of all of these MBS’s in all their varieties are pension funds and fixed income funds sold to people for their 401k plans. So the public is going to take it in the shorts as their home values drop, and as the returns on their pension funds and 401k’s drop. The only thing holding this whole house of cards together is the fact that the Chinese need us to buy their stuff; so the Chinese central bank is piling up US Treasuries which is keeping a lid on long term interest rates. The carnage that would result if the yield curve reverts to a normal shape is pretty scary…
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