A billboard at Fannie Mae's headquarters in Washington, DC, USA is surrounded by snow. The full text has a total of 8817 words, and it takes about 18 minutes to read. The global economic crisis in 2008 is still unforgettable.

A billboard at the headquarters of Fannie Mae in , Washington, DC, USA is surrounded by snow. (Visual China/Photo)

The full text has 8817 words, and it takes about 18 minutes to read

The global economic crisis in 2008 is still unforgettable, and the myth of "the longest prosperity period in history" is shattered. This far-reaching crisis stems from the superposition of a series of "black swan" events in economically developed regions, and the EU and the United States are the main sources of the crisis. In the United States, the financial tsunami triggered by the subprime mortgage crisis brought two mysterious companies, "Freddie Mai" and "Freddie Mai" (collectively known as "two houses") into the public eye.

To this day, real estate in the United States is still worrying. Around July 2018, housing prices and sales fell in some parts of the United States, which caused market tensions. The shadow of the subprime mortgage crisis is still tormenting people and cannot be forgotten.

Ten years later, the Lehman Brothers company, which fell amid the scolding of everyone, is still struggling in the quagmire of bankruptcy protection. The real source of the crisis, the "two houses", was large but not overwhelming, and the controversy and troubles surrounding them continued to form a huge vortex.

1

Two Room Crisis Prequel

In the real world, the one that can cause hurricanes must be an ordinary butterfly. The two houses have a prominent background, and they are born in the "storm" with noble "dragon blood".

In the 1930s, the United States was deeply trapped in the quagmire of the Great Depression. After the government came to power, it tried to use a series of interventions to boost the economy. The dazzling legislation and the establishment of new government agencies were introduced, known in history as the " Roosevelt's New Deal ". Among them, the National Housing Act of 1934 is quite eye-catching. The purpose of the bill is to make housing and mortgages more "affordable", which means that housing-related financial operations are incorporated into the government's public policy guidance and management - in fact, support and encouragement. Before this, the US real estate finance was not a hot business in the market, mainly short-term mortgage loans paid at the end of the period, reflecting the cautious attitude of financial institutions.

1938, according to the above bill, the US government created the predecessor of "Fanli Mae" - " Washington National Mortgage Association". In the following thirty years, it was natural that "Fansie Mae" and its predecessor monopolized the secondary mortgage market - to be more precise, this market was created by a complete set of mechanisms with "Fansie Mae" as the core.

Public institutions with an absolute monopoly position are always moving towards lifeless bureaucracy, and "Fansie Mae" is no exception. In order to improve operating efficiency and to attract market funds to enter the secondary mortgage market, the introduction of private capital has become the direction of reform. In 1954, after special legislation, Fannie Mae became a mixed-ownership enterprise. Such limited reforms cannot solve the problem of lack of competition in the market, nor can they solve the funding gap, and the situation has not been fundamentally improved.

1968, President Lyndon Johnson comprehensively transformed the entire mechanism with "Fanli Mai" as the core. He first independent Fanli Mai's clear government functions department and established another federal company, Geely Mai. Then in 1970, Fannie Mae went public and achieved the so-called "privatization". At the same time, it has created a twin brother Freddie Mac for the "Privatization" to introduce a competitive mechanism.

Two-bedroom house is not an ordinary private enterprise, but a government-sponsored enterprise with special relationship with the federal government. The federal government has passed special legislation to grant GSE a large number of privileges, such as multiple tax exemptions and federal funding support, and also retains the power to interfere in the operation of two-bedrooms. Unlike federal companies like Geely Mei, the federal government does not provide any clear guarantees to GSE, but the market generally believes that the consequences of GSE's behavior will be "guaranteed". The federal government has adopted a tacit attitude towards this, which is called "implicit guarantees". This blurred boundary setting is intentional.As a result, the federal government has dumped the huge expenditures and debts of federal companies, and has increased credit to GSE through "invisible guarantees" to attract more market funds to enter the real estate industry. In short, this system cleverly amplifies the financial leverage of GSE and even the entire second-level mortgage market for real estate.

However, the poor economic situation in the United States in the 1960s and 1970s did not provide conditions for the development of two-bedroom houses. High inflation and high deficits have led to low investment confidence and low investment attractiveness in the US market, and limited real estate market size, so it is difficult for GSE to achieve success.

In the late 1970s, things changed. In order to promote the development of the real estate industry, the Carter government promulgated the Community Reinvestment Act in 1977, requiring banks to issue more mortgage loans to poor areas. The bank's response strategy is to initiate high-risk mortgage loans and then sell the loans to two houses through the secondary mortgage market to avoid risks.

Another important change is the collapse of the Bretton Woods system, the decoupling of the US dollar from gold, and the changes in international financial rules. Currency issuance has lost its final anchoring mechanism, and governments are competing to "leave themselves" in currency issuance. The "real estate boom" stimulated by a large number of currency has begun to emerge. Since the late 1970s, the average house price in the United States began to rise rapidly. In January 1975, the average house price in the United States was $39,500. By 1980, the average house price had risen to $72,400.

At this point, the basic elements of the subprime mortgage crisis have been prepared: loose monetary issuance, policy orientation to promote the real estate market, and a secondary mortgage market platform with GSE as the core. Only one "prosperity" with flying bubbles is needed.

2

Two houses and Wall Street

1989 Reagan defeated Jimmy Carter , and the Republican Party took office. This is definitely not a good thing for the two houses.

The GSE system of two-bedrooms was created by previous Democratic governments, and the Republican Party is not keen on this. Reagan even scoffed at GSE, and mocked the two houses during the campaign stage, "The fewer companies that seem to last forever in the world, the better." In the early days of his administration, due to the rapid rise in federal interest rates, GSE's investment business profits fell, resulting in operational difficulties, and even rumors that "Freddie Mac" was going bankrupt.

The Reagan administration let GSE's dilemma be left to itself and let it fend for itself, forcing GSE to adjust its business direction - this has indeed played the advantage of private enterprises to adapt to market changes. In 1981, Fannie Mae issued its first mortgage-backed security (MBS) and began its mortgage-backed security business: after GSE purchased a mortgage loan from the primary market, it packaged it into a housing mortgage-backed securities MBS, and then sold it to investors. Unlike the investment business model, in the mortgage guarantee business, the "two houses" only bear the credit risk of the loan and collect a certain proportion of the guarantee fee, while other risks of the mortgage securities are borne by investors. The benefits of this model are obvious. The bonds guaranteed by two-bedroom houses are not included in the balance sheet, the risk review is more flexible, and the capital turnover rate is greatly improved.

Under the market conditions at that time, it was not wrong to start the mortgage guarantee business. First, it was to cope with the high interest rate environment. Later, with the economic prosperity of the Reagan era and the large number of overseas investment led by Japan entering the US real estate market to "buy, buy, buy" the market demand for mortgage guarantee business was very large. However, this also laid hidden dangers in the future - GSE's guarantee business is different from normal market behavior, and its risks are directed to taxpayers' wallets due to the existence of government "invisible guarantees".

At this time, the financial talents on Wall Street began to develop the huge value of GSE. Peter Lynch, a legend on Wall Street, discovered that the secondary mortgage market is operating real estate mortgage loans in batches in a "pork sausage assembly line", and GSE is dancing in the air. Peter Lynch has held a heavy holding of "two-house" stocks for many years, and it is the huge profits of GSE's stock trading that wrote his legend - in the 13 years he served as the head of Magellan Fund, a subsidiary of Fidelity, his assets increased from $18 million to $14 billion.

Peter Lynch is not an isolated case. At the same period, Buffett also held a large number of Freddie and US stocks, which is a bit similar to the heroes. In this golden age, Wall Street has formed a deep relationship with GSE.Finance has boosted its full power, and the real estate market has grown stronger.

In January 1990, the median housing price in the United States was $125,000, and the average housing price reached $151,700. Compared with 1980, it has more than doubled. The market size of housing mortgage-backed securities in the United States has reached hundreds of billions of dollars, surpassing the historic steel, coal mining and oil industries, and this huge market is basically monopolized by Fannie Mae and Freddie Mae.

The decade-long golden growth period is precisely the Reagan administration era when he was least interested in the GSE model. During this period, there was no frequent legislation involving "two-household" and housing public policies, which was almost a blank period for government intervention.

3

Clinton opened Pandora's Box

Bush also had no interest in GSE, continuing the laissez-faire attitude of the Reagan era. However, at the end of his term, he signed the Housing and Community Development Act of 1992, which reflects the views of the Democratic Congress, which stipulates that the GSE is required to meet the "Affordable Housing Goals" set by the Department of Housing and Urban Development (HUD) every year and passed by Congress. The initial annual goal was 30% of the total housing units purchased by each GSE to finance mortgages, opening up the magic box for government mandatory intervention in GSE operations.

Once the door to government intervention is opened, it will be out of control.

Clinton, who took over Bush, implemented an upgraded version of the Roosevelt New Deal in the prosperous era, and the government led the intervention of the market to drive social investment and mass consumption to stimulate economic growth. Obviously, he would not neglect the legacy of Roosevelt's New Deal - GSE.

With the encouragement and acquiescence of the government, GSE has removed one risk firewall after another, and the final line of defense is to avoid high-risk mortgage loans, which is the so-called subprime loan (referred to as subprime mortgage). In the financial field, the packaging of terms is always full of wisdom. It sounds like a "subprime loan" is just a boring credit rating, but in fact it is lending to unqualified lenders. The accurate expression should be a high-risk unqualified loan. This type of lender has neither sufficient collateral nor a stable source of income, so he can only accept higher loan interest rates, which further amplifies loan risks. GSE lacks interest in subprime mortgage business.

However, the Clinton administration needs to increase the U.S. housing ownership index by expanding the issuance of subprime mortgages, which is the grand ambition of previous Democratic governments since Roosevelt. Before Clinton, the housing ownership rate in the United States was always stable at 65%. The remaining 35% are mainly low- and middle-income families, among which the Democratic Party’s hard-core vote-storey ethnic group is mainly the one with a strong demand for subprime mortgages. For political concepts and the realistic considerations of maintaining the basic foundation, the Clinton administration released the subprime mortgage.

In 1995, the federal government's Department of Housing and Urban Development (HUD) formally approved two-bedroom houses to obtain "Affordable Housing" credit for purchasing subprime loans. HUD's charge is not just for the two houses to hear, but it has spread the signal that the federal government supports subprime mortgages throughout the market.

The Clinton administration achieved its goal, and it was much better than expected. During his tenure, Americans' housing ownership rate reached 80%, which was a miraculous "progress". However, the government has exerted an influence on the market through GSE, reducing the market standards for loan review to meet the "affordable" standards set by the government, and the consequence is that more high-risk people can borrow to buy more properties in high-risk areas. This is an absolute real estate bubble.

bubble was exposed in the Bush era. At the end of Clinton, the bubble in the high-tech industry burst, and the ominous signs of industrial hollowing out had already shrouded the US economy.

If Clinton's successor can have sufficient judgment on complex and dangerous situations, the situation at that time may be saved - but the losses are unavoidable. However, President Bush is definitely not the best candidate. Although public warnings on the potential risks of the two houses have been heard since 2000, including heavyweights like Greenspan, as well as calls from the media and experts, and even the Ministry of Finance and HUD expert teams within the government also have strong opposition. However, no one has taken substantial measures to prevent the crisis from happening.

On the contrary, the Bush administration once planned to follow his predecessor's practice and use GSE as a tool to stimulate the economy. The statutory quota that Bush Sr. began was repeatedly raised by the Bush administration, which also attracted Wall Street investment banks such as Lehman Brothers to enter the subprime mortgage market. The logic is very simple: since GSE has to expand the acquisition of subprime mortgages in order to meet quota needs, the demand in this field is guaranteed.

However, the United States has entered a cycle of interest rate hikes. In 2002, the US federal interest rate was 0.75%. After 17 interest rate hikes, the federal interest rate reached 5.25% in 2005, and GSE faced huge operating pressure. Under such circumstances, the government has continuously increased the statutory quota for two-bedrooms and encouraged two-bedrooms to enter the subprime mortgage market, intending to forcefully expand the two-bedroom business to alleviate the impact of interest rate hike policies on the real estate industry - this is a foolish policy to put out the fire with negative wages.

In 2007, the major liquidation began. As more and more areas are falling, foreclosures for some subprime mortgages have begun to spread. On April 2, New Century Financial, the second largest subprime mortgage supplier in the United States, declared bankruptcy. The subprime mortgage company, whose assets in early 2007 had exceeded US$1.7 billion, shrunk to less than US$55 million in just three months - Fannie Mae is the largest buyer of New Century mortgage loans, and the nightmare has just begun.

In 2008, the decline in housing prices in the United States had reached 50%, the foreclosure rate of subprime mortgages rose sharply, and the so-called "basic housing demand" bubble was burst. This has triggered a large-scale financial shock, known as the "subprime mortgage crisis" in history. Lehman Brothers, the "pioneer" of investment banks entering the subprime mortgage market, is in turmoil and bad news. Lehman's stock price plummeted in March and layoffs were largely laid off. News was announced in June that it lost $2.8 billion in the second quarter. This investment bank, the fourth-ranked investment bank and a century-old store on Wall Street, is facing bankruptcy, which has greatly attracted the attention of the public. However, industry insiders know that the real eye of this crisis is GSE.

The total amount of housing mortgage loans held or guaranteed by two houses is approximately $5.3 trillion, accounting for half of the total housing mortgage loans in the United States. Compared to them, Lehman Brothers is nothing more than the lice on the dragon.

4

2008: Reluctantly Saving

2008, then Secretary of the Treasury of the U.S. Federal Government, will face the most painful choice. Paulson himself is a firm free market corporations and pursues the principle of "non-interference". He is rigorous, diligent, and quick to make decisions, and pays special attention to execution. Often, he starts to call and ask about the execution status of his subordinates two or three hours after the decision is made.

's handling of Lehman Brothers fully reflects Paulson's courageous and tough style. In May, Barclays, the third largest bank in the UK, planned to acquire Lehman, and this acquisition intention was based on the premise that the US government took action to save Lehman. However, Paulson had no consideration of using the government's power to save Lehman, which led to Barclays giving up the acquisition. Lehman Brothers finally filed for bankruptcy protection on September 15.

However, facing the two rooms, Paulson hesitated. He did seriously consider letting the two rooms fend for themselves. Although the "invisible guarantee" of the U.S. government has always been the cornerstone of GSE's business, successive U.S. governments have never made clear guarantee commitments. There is no legal risk to refusing to save two houses.

"Taxpayers have too much exposure to risk, and two houses must disappear", was once an informal consensus in Washington. "This is an opportunity to get rid of institutions that shouldn't exist," said former Fed chairman Paul Volker . Wall Street is exhausted from resentment of angry public opinion, and its ability to influence government decision-making has been weakened, and there is no political pressure to save. However, the economic consequences of letting the two houses fall freely are immeasurable. The policy preferential treatment for two-bedroom apartments has accelerated the spread of the plague. For example, the mutual fund holding a single stock cannot exceed 5% - this was the case in Peter Lynch's era, but by 2008, two-bedroom stocks were completely unrestricted, and mutual funds with more than 80% of the two-bedroom stock positions were everywhere.For example, the normal operation of asset guarantee business requires the guarantor to have at least 3% of the guaranteed assets, but the US government has given GSE a small fee - two houses are not subject to this restriction, and the financial guarantee of its guarantee business is usually around 1.5% of the guaranteed assets. The privilege of enhancing GSE liquidity also enhances the contagiousness of "toxic assets". No one can tell how wide the scope of the disaster will be if the two houses go bankrupt.

However, the economic consequences of letting the two houses fall freely are immeasurable. The policy preferential treatment for two-bedroom apartments has accelerated the spread of the plague. For example, mutual funds cannot hold a single stock position more than 5% - this was the case with the Peter Lynch era, but by 2008, two-bedroom stocks were completely unrestricted, and mutual funds with more than 80% of the two-bedroom stock positions were everywhere. For example, the normal operation of asset guarantee business requires the guarantor to have at least 3% of the guaranteed assets, but the US government has given GSE a small fee - two houses are not subject to this restriction, and the financial guarantee of its guarantee business is usually around 1.5% of the guaranteed assets. The privilege of enhancing GSE liquidity also enhances the contagiousness of "toxic assets". No one can tell how wide the scope of the disaster will be if the two houses go bankrupt.

The huge size of the two rooms is even more suffocating. The "half of the sky" of housing mortgage loans across the United States, and the assets held and secured are $5.3 trillion, which is no exaggeration to describe as "the sky collapses and the earth collapses".

If this is not fatal enough, then the risk of triggering a credit crisis in US debt is unbearable for anyone. If the GSE government's invisible guarantee collapses, the next suspect will be US Treasury bonds, and behind the US Treasury bonds is a complete dollar monetary system... A large number of overseas investors holding GSE bonds are watching the development of the situation with breathtaking care. If the debt default is caused to them, the consequences may be unimaginable, which may have catastrophic consequences for the credit of the United States and the credit of the US dollar.

No matter how reluctant it is, Paulson eventually had to compromise. On July 11, the New York Times reported that US government officials were considering taking over the two-bedroom plan, and the US Treasury Department also issued an announcement to confirm the news. Paulson tried to stabilize market confidence in this way so as not to really come up with his "bazooka". What he did not expect was that the fear of the US government's intervention would clear the market investors, causing a panic selling of the two-house stocks. In August, Fannie Mae and Freddie Mae's stock prices fell by more than 90% compared with a year ago. Direct government intervention is inevitable. The action is “one of the most thorough government interventions in private financial markets in decades”.

On September 7, Federal Housing and Finance Agency (FHFA) Director James Lockhart announced that Fannie Mae and Freddie Mae will be placed under FHFA's supervision.

The US Treasury Department injects $1 billion into each company to buy preferred shares. The US government can inject up to $100 billion into the "two houses". In addition, the Ministry of Finance has the right to acquire 79.9% of the common stock of the "two houses" at a "trivial price". If you do so, it will not "take over the two houses", but nationalize the two houses.

Although it is estimated that the direct investment of US$100 billion per company is enough to save two houses - "it can't cost so much money", Paulson still announced backup measures such as short-term loans to stabilize market confidence.

But Paulson's ultimate goal was not to bring the two houses back to life, but to gradually limit their size after the government took over and eventually "kill the two houses" - this was the consensus in Washington at that time.

According to his plan, each company's mortgage assets will be reduced by about 10% each year until each drops to about $250 billion. Paulson said he hopes to reshape the U.S. housing financial system for a longer period of time and abandon "imperfect business models" of government-funded enterprises such as "two houses". If one thing most people in Washington have long agreed, it is: two families will die. It is said that in Washington's policy circles, talking about restoring GSE is even considered impolite.

However, the final decision will be made by the next administration and Congress. At the end of this year, with the victory of Obama and , the handover has begun.

5

Two rooms have become bigger

In 2009, Obama came to power.At the beginning of his term, Paulson's plan to "kill two houses" was continued. By the end of 2010, it had cost more than $150 billion to save two houses, and FHFA estimated that it would cost taxpayers $224 billion to $360 billion. In 2012, the Obama administration said that the two houses had fallen into a death spiral and that the government needed to protect taxpayers from additional losses. The specific approach is: in addition to a small amount of reserved funds, the profits of two houses will be cleared regularly every quarter and sent to the Ministry of Finance. The reserved funds were 3 billion in 2013 and planned to reduce them by 600 million per year until they reach zero in 2018 - the Ministry of Finance said this would gradually end the two houses.

However, since September 2012, the two houses have started to make profits. By 2014, the profits paid to the U.S. Treasury Department had exceeded all the previous spending to save the two houses. According to Freddie Mac CEO testified in Congress in 2018 that "$112.4 billion has been refunded to taxpayers, nearly 60% more than the assets we received from the U.S. Treasury Department" - saving two houses has become the most profitable government-saving enterprise project in history. In fact, it is not surprising that GSE turned losses into profits during Obama's tenure. The Obama administration has long pursued a monetary easing policy of low interest rates and high treasury bonds, which is very conducive to the operation of GSE. Moreover, after 2008, major economies around the world have gradually adopted loose monetary policies in order to cope with the international financial crisis. Against this background, U.S. assets are still a hot spot for international investment, and housing prices have rebounded rapidly. With the rebound in housing prices and the continued low interest rates, GSE's revenue increase is predictable.

The Obama administration said it would leave the solution to the two-house problem to Congress legislation. Although there have been rumors of trying to legislate many times, no bill has appeared. Jeb Hensarling, a Texas Republican, chairman of the House Financial Services Committee, wants to give up Fannie and Freddie completely, while some Democrats believe they should be strengthened rather than killed. In a legislative effort in 2014, lawmakers said shareholders might find nothing.

While Congress is in a deadlock, clearing profits continues. Thousands of private shareholders are getting more and more angry and they are starting to seek judicial solutions. So far, there have been more than 20 lawsuits, and none of them have won the case. Their demands include: the government clears profits as illegal confiscation of private property, the reason given by the government is to lie, etc. Private investors accused the government of lying with sufficient evidence. Some exposed documents show that Obama administration officials had predicted that GSE would soon make a profit before implementing the "empty profit" measure in 2012.

There are many other supporters behind these private investors, including academics, non-profit organizations, etc. Many people also realize that GSE's profits have been cleared by the government, so it is impossible to form corporate capital. Once a new crisis occurs, it still depends on the government to save it. Continuing to tie GSE firmly with government finances is obviously taking huge risks. Critics believe that the Obama administration’s second term uses GSE as a source of fiscal revenue in exchange for short-term benefits of the government at the expense of long-term risks of taxpayers. What is even more problematic is that the government plunders the interests of private shareholders through regulatory means, which violates the long-standing values ​​of American society. It is still difficult to explain what happened to the "two houses" during Obama's tenure. Thousands of documents are yet to be lifted by the government, which is one of the requirements for private investors to initiate lawsuits. But whatever happens, it must be out of the predefined track of shrinking GSE assets year by year, eventually eliminating or completely decoupling from them. Because the size of two houses has almost no change, the proportion in the real estate mortgage loan market is even higher. In 2017, two houses accounted for 70% of the total loans initiated in the market, and it has made great progress in the subprime mortgage market. More than half of the subprime loans have been guaranteed, exceeding the scale before the outbreak of the subprime mortgage crisis.

is in a political stalemate where two rooms have become cash machines in the Ministry of Finance, and the Obama era is over. This "hot potato" was handed over to the next president, and a record $20 trillion in debt was handed over.

6

Leave it to Trump Dilemma

Trump's victory brought new hope to investors of two houses. He vowed to be completely privatized during his campaign, which is also the reason why private investors of the "two houses" support him.

It is reported that there is a close relationship between Trump's team and investors from the two houses. Major investors, including , John Paulson and Bruce Berkowitz, donated money to the Trump team, and the former became advisers to the Trump transition team. Trump-appointed Treasury Secretary Steven Mnunchin served on the board of Sears Holdings Corp and was a representative figure who advocated the complete privatization of the "two houses". Ken Blackwell, who has been criticizing the government's position on the two houses, is also a member of the transition team.

After Trump was elected, the stocks of two houses soared. Fannie Mae's stock price rose from $1.69 on November 4, 2016 to $4.38 on February 3, 2017. Freddie Mac's stock price is roughly the same trend.

But two years since Trump was elected, the final solution for the two houses has not been released. In February 2018, the Supreme Court also expressed its refusal to be involved in the struggle for profits of two houses. The stock prices of two houses suffered a heavy blow, and the ups and downs finally returned to the level before the 2016 election.

Steven Mnuchin said in his public speech that tax reform and deficit reduction are the primary issues he faces, which is indeed a reasonable explanation. However, the sensitivity and importance of the two-bedroom problem must be taken seriously, which is beyond doubt that the solution will not be issued for a long time.

The Trump administration does not have many options, and there are theoretically two directions - nationalization or complete privatization. In fact, nationalization is not feasible. The Paulson rescue plan ten years ago arranged for the government to acquire the subscription rights of 80% of the two-bedroom common stock at a symbolic price, leaving a path for nationalization. However, the debt of two houses of about $6 trillion and the high risks in the housing mortgage market are prohibitive. No president dares to take responsibility for an increase of $6 trillion in U.S. government debt overnight. Obama raised the U.S. Treasury bond ceiling by one trillion in seven months in 2009, which has caused widespread concerns about the "U.S. government debt crisis." What's more, is the increase of 6 trillion yuan at one time? Therefore, Obama would rather risk all kinds of doubts and use administrative means to clear the profits of two houses than to implement nationalization to take away all the profits of two houses in justification. And Trump is even more unlikely. It seems that the only option for

is privatization, but how easy it is? After all, before 2008, the two houses were also "private": when the year was good, private investors paid a lot of dividends, and senior executives frequently reported huge corruption. The U.S. public will not allow GSE to return to this state of "private money making and taxpayers taking risks", but the U.S. real estate mortgage market also finds it difficult to bear the consequences of losing government guarantees. The American public has already relied heavily on the "long-term fixed interest rate" loan model. Without GSE's government credit as a guarantee to "guaranteed" banks and loan companies, these financial institutions will not issue such high-risk and low-yield loans. If government guarantee measures are lost, the second-tier mortgage market of more than $10 trillion will shrink rapidly, and the riskier subprime loans will even disappear.

Therefore, even if Trump and Steven Mnuchin believe that privatization is the only option, corresponding buffering measures must be formulated. Judging from the relevant reports published by the Trump administration this year, in this privatization plan, clarifying and explicitizing the government's invisible guarantees and minimizing the risk of taxpayers' assistance is their main consideration. That is, clarify the responsibilities of government guarantees and clarify the public and corporate functions of GSE. Then, it is likely that the next step is to separate the government functions, and set up a state-owned enterprise with limited size and specialized functions according to the method of establishing Geely Midea that year, and completely privatized the remaining part and end GSE in a gradual dismemberment. However, no matter how you buffer the speculation, the US real estate mortgage market cannot avoid severe turmoil.Fundamentally, this huge market was originally the product of a long-term cultivation of a series of government interventions after the Roosevelt New Deal. Just as an addict who is highly dependent on drugs is extremely weak, the drug rehabilitation process itself is a fatal adventure.

As long as the huge size of these GSEs does not decrease for a day, the danger of implicit guarantees cannot be avoided by clear legal provisions alone. It is easy to imagine that when the crisis happens again, as long as there is absolutely political necessity, taxpayers still have to "pinch their noses" and tighten their belts to save them again.

No matter how the Trump administration plans, the United States will face the same problem sooner or later: How to kill the giant Atlas while avoiding the sky and the earth?

(the author is a history and economist)