Valuing and Eliminating Subsidies Associated with Conjectural Treasury Guarantees of FNMA (Federal National Mortgage Association) Liabilities

摘要

The report explains the economics of financial guarantees and develops a method for finding the market value of aggregate Treasury guarantees of Federal National Mortgage Association (FNMA) debt during the period, 1978 to 1984. Exploiting an analogy between FNMA and a federally insured S&L, the report identifies incentive problems inherent in the Treasury's failure to monitor and price adequately its exposure to bailout pressures. The report ends with an analysis of alternative actions that the Treasury could take to resolve these incentive problems.