At today’s Senate Banking hearing, attention focused on the third option in the White House reform plan:  creating a series of MBS guarantors backed by USG catastrophic-risk reinsurance.  We read the Administration paper as preferring this of the three proposed successor securitization models, a conclusion strengthened by Geithner’s presentation last week before House FinServ.  The devil is in how to price the cat-risk backstop, a problem extensively discussed today in concert with small-bank fears about being squeezed out of the secondary market under this model.

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