THE FANNIE/FREDDIE TEASE.

• Position: Fannie Mae and Freddie Mac gear for battle with home loan banks over future role - Brief Article

Over the last several months, Washington has seen unfold a kind of elaborate minuet involving the quasi government agencies Fannie Mae, Freddie Mac, and the so-called home loan banks. Some of Washington's most powerful policy players are laying down markers for a potential intellectual battle over the future role of the so-called GSEs (government-sponsored enterprise). But because this is an election year, all involved are being deliberately coy about their intentions.

First, senior U.S. Treasury officials, worried about the ferocious ambitions of the GSEs to move beyond their activities in the low-income housing market, questioned outloud the nature of GSE subsidies themselves. This mere mention by the officials dramatically widened interest rate spreads. But then officials quickly and cleverly pulled back, saying their position on this issue reflected "nothing new." Of course, the reality is that in addition to questions involving potential systemic risk to the U.S. financial system by GSE expansion, Treasury officials have more immediate concerns. With the U.S. Treasury securities market shrinking as the U.S. rapidly pays down debt, Treasury officials must confront the question of establishing some benchmark for dollar-based reserves in the future.

Notice the second player involved. Powerful Senate Banking Committee Chairman Phil Gramm (R-TX) is being just as shrewdly coy on such a sensitive issue. Gramm's position is...