Undoing Moral Hazard in Governance of Fannie and Freddie for Liberty
This letter tells of the shorts by water stone and the US treasury on Fannie and Freddie
The government can win its case in favor of private banks to wipe out Fannie-Freddie stocks by convincing the judge privately that the entire banking system would otherwise collapse because most money center banks (members of Clearing House LLC under the domain of protection by the Federal Reserve Board) have hedged their assets by building very large short positions in Fannie-Freddie stocks. The money center banks did so with explicit assurance of the government that Fannie and Freddie would be wound down. The government has to keep its commitment to private banks. Or else, the entire banking system, life blood of the economy, would perish.