7 Moreover, the spread of GSE debt over Treasuries has been remarkably unresponsive to the recent problems of the GSEs (including the turnover of senior management and the inability of either company to provide current financial statements), suggesting that investors’ faith in an implicit government guarantee remains unshaken.
As I have also noted, their low cost of borrowing gives GSEs an advantage over market participants in profitably financing the acquisition of just about any market-priced asset (other than U.S. Treasuries), and it creates a strong incentive for these companies to look for new types of assets to acquire and to find new lines of business to enter.