Fannie Mae and Freddie Mac (government subsidized entities, GSEs) are posting billions in losses, facing insolvency, their portfolios are rapidly becoming worth less and less, a government bailout looms on the horizon, and what does the Office of Federal Housing Enterprise Oversight do? They raise loan limits for Fannie and Freddie, remove portfolio caps altogether and ease capital requirements.
As Mish is quick to point out, the mission of the GSEs is to make housing affordable, yet somehow instead of doing this they've been busy the last few years driving up home prices by buying risky loans, the results of which are now being felt by everyone. Now that the bubble has burst, instead of reversing course and getting back to their core mission of affordability, they decide to further support inflated home prices by raising the conforming limit to over $729,000. I defy anyone to explain to me how anything near $729,000 is affordable for the average American.
So, what the hell is going on you ask? Home prices are falling and banks and wall street are suffering greatly as a result. That's it. The mission of the GSEs now is to inflate home prices at all costs, quite a drift from their original mission of promoting affordability. Clearly the GSEs are headed on a course for disaster, but that doesn't matter. After all, what cost is it to them when they file for bankruptcy? The taxpayers will be picking up the bill.
The captain is drunk, the ship is heading for a reef and instead of turning away we're steering straight into disaster. The shipowners have an insurance policy they're hoping to collect on.