Freddie Mac's Regulator 'Completely Puzzled' By Allegations Of Conflict - NPR

``Edward DeMarco told Morning Edition co-host Steve Inskeep in an interview broadcast on today's show that Freddie Mac's actions were "in the class of ordinary business transactions." The "reverse floaters" in Freddie Mac's investment portfolio, which as NPR has reported "brought in more money for Freddie Mac when homeowners in higher interest-rate loans were unable to qualify for a refinancing," did not affect the agency's efforts to stabilize the mortgage market, DeMarco said.''

It seems to us the underlying question is really whether "normal business" is really "normal" for obvious wards of the government like Fannie and Freddie. Either privatize them for real (in which case hedging like this would be baked in the cake, and properly priced-in, and therefore "normal"), or make them into a homeowner bailout vehicle -- but whatever you do, for god sakes, do it officially. This having-it-both-ways stuff is clearly not working.

Even DeMarco himself accepts this ridiculous "dual mandate" when he refers to "the agency's efforts to stabilize the mortgage market". Preventing people from refinancing is obviously not stabilizing the market. Society would benefit if DeMarco would simply be more candid and say something like "we cannot overtly provide relief to distressed homeowners unless we are either given an appropriation, or someone [such as the Fed] helps absorb our derivatives risk."