In this analysis, we appraise Director Watt’s totally leaked plan for the GSEs which, while deferential to Congress, is nonetheless clearly aimed at setting a baseline from which Senate Banking’s bill proceeds.  Consistent both with recent Watt statements and longstanding FHFA priorities, the key to the plan is converting the conservatorships into privately-held utilities, an approach we have long suggested would likely prove the most feasible transition strategy.  However, lest GSE investors continue to jump for joy, it’s important to remember that a necessary condition Watt proposes – robust capital and liquidity standards – means that earnings will be a long, long time a ‘coming for new-style GSEs.

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