Summers on the GSEs

Larry opines on Fannie and Freddie:

These institutions� viability with anything like their current operating model depends on the implicit federal guarantee of their several trillion dollars of liabilities. It is appropriate at a time of crisis in the mortgage markets that they become, as their regulator put it last week, the �lender of first, last and every resort�.

It is not appropriate that their shareholders� �heads I win, tails you lose� bet with the taxpayer be expanded for this purpose. Given their past and prospective losses, their regulator � supported by the Treasury, the Fed and, if necessary, Congress � should insist that they stop paying dividends and raise capital promptly and substantially as they expand their lending.