As we peer into the morass of Trumpian economics, Patrick Jenkins shines a useful light into that corner of the market where it all went wrong last time — namely the US mortgage market (“America’s mortgage industry has an addiction to big government”, Business Insight, April 8).
The US mortgage market has lost none of its oddness, even if it is not front and centre of the current unfolding mess. After the 2008 financial crisis, Hank Paulson, George W Bush’s Treasury secretary, asked Neel Kashkari, one of his deputies, to examine a better way of funding mortgages. Fannie Mae and Freddie Mac, the government-underwritten home loan agencies, had in effect gone bust as real estate markets plummeted. However, elsewhere sufficient subprime mortgages remained on intermediary bank balance sheets (including that of Merrill Lynch where I then worked), to sink a few investment banks and trigger the crisis. That much is history.
Shortly after, a working group was assembled of which I was part (as an international mortgage finance specialist). The group was to examine a profound retooling of the US mortgage market by sidelining the legacy state-sponsored agencies, and introducing a US version of the covered bond (aka the Pfandbrief).
A frantic period of discussions across the aisle of Congress ensued, culminating in a cross-party bill before the House. Alas, the plan to create a US covered bond market was doomed — political dysfunction, conflicts of interest and resistance to change sank the proposal.
It remains an enduring curiosity that the once famously free-market US has clung to mainly state-sponsored mortgage finance, while more socially-minded Europe embraced a distinctly private sector approach.
Logic suggests the so-called Department of Government Efficiency (Doge) should take the chainsaw to the agencies, but I suspect that Trumpian logic will see this US exceptionalism, with all its consequences, survive.
Tim Skeet
UK Chair, ICMA (International Capital Market Association), London SW19, UK
