Bill Ackman, and various other hedge funds, own significant stakes in GSE equity through derivative contracts. So presumably someone, and someone very large, is short on the other side of this trade.
It could be anyone. But just "someone" Monday was in fact talking down the future role of GSEs and pumping their own part in a world without Freddie or Fannie - none other than Warren Buffett.
Can Berkshire Hathaway really step in and ensure the liquidity of the 10 trillion mortgage market? Can it guarantee the stability of US financial system?
Warren Buffett believes so. That is, if Berkshire is allowed to quadruple the fees that are charged to homeowners. Currently GSEs charge around .59% annually versus the 2% Mr. Buffett proposes to charge via the private market. So, if you like your 4% government sponsored mortgage, lock it in now; you're probably not going to like the 5.5% Berkshire-backed one.
This would not be the first time that Mr. Buffett ventured into the world of other people's money. A few years back, Mr. Buffett also suggested that everyone's taxes should go up. This was after years of him generating his wealth at lower tax rates. It's good to be king. It's sometimes necessary to change the rules mid-game, to remain one.
So instead of ballooning our mortgage payments, or taxing us working stiffs to death, why not just enact a 2% yearly tax on all assets above 1 billion dollars? Or an additional 10% levy on all lifetime earnings above 100 million? Mr. Buffett can really put his money where his mouth is, and maybe we'll stop thinking his musings on government policy are so hypocritical.
Disclosure: I am/we are long FNMA, FMCC AND THE VARIOUS PREFERRED SHARES OF THE ENTERPRISES. AT THE TIME OF THE WRITING WE ARE ALSO SHORT BRK/B.
Additional disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This does not constitute a recommendation to buy or sell any of the stocks mentioned.