GSE defenders have long argued, as Treasury did just a week or two ago, that one has to have something like a GSE to ensure residential-mortgage market liquidity in a crisis and thus protect the economy.  However, a new NBER study suggests that it was at least as much the FRB’s QE decision as the role of the GSEs that pulled the mortgage market out of a way-deep hole in 2009.  As a result, one could conclude that all one needs to ensure the lights stay on is a central bank willing to purchase mortgages from the market when times get tough – an interesting approach to solving for emergency mortgage-market liquidity without GSEs that, appealing though it will be to academics and Democrats, will be a hard sell on the Hill.

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