Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

Okay. But that still leaves me a little puzzled about how good of a hedge this is. Except for the idea of callable debt, which I hadn’t thought about as a course of action they could take, what are the alternatives? If they had previously hedged, whether by using ten-year Treasuries or something else, and we got this kind of decline in mortgage rates, then the hedge could work. The gains on the Treasuries, if that’s what they hold, would compensate them for their losses on the mortgage portfolio. But in their case it’s certainly not apparent to me that the inverse is true. Somebody else, a mortgage banking company, for example, can do that. If rates rise, they have a loss on their Treasuries, and they have a gain on their mortgage portfolio. Is that possible with Fannie Mae? I can’t see them going out and saying, we will take losses on our hedge portfolio and we’re going to sell something else and take gains on it.

Keyboard shortcuts

j previous speech k next speech