With the administration's blueprint for overhauling the GSEs due in January, Barclays Capital has offered its own vision.

In a December report, analysts with the firm wrote that an industry proposal to replace Fannie Mae and Freddie Mac with bank-owned cooperatives that would create MBS carrying an explicit federal guaranty would not solve "the problem of privatizing profits and socializing losses," even if the destination of the privatized profits would change.

"The government's track record of pricing risk adequately is poor," they wrote, and "the taxpayer would remain accountable for any losses greater than" cushions established through guarantee fees paid to the government and equity interests in the cooperatives. Moreover, the approach would further concentrate the industry among the banks that own the cooperatives, which seems "at cross-purposes" with efforts to address "too big to fail."

Still, the prospect that price-setting would be "commandeered by the political process" would apply under a fully nationalized system.

The Barclays analysts argued that it is not "politically feasible or fiscally appropriate" for the government to permanently absorb the entirety of the GSEs' $5 trillion book of business. While the case for a continuing government role has been made by the evaporation of private lending during the crisis, the Barclays analysts wrote, "encouraging the resurrection of private-sector financing alternatives should be a critical part of GSE reform."

They recommended criteria for standardized mortgages and risk retention in securitizations to undergird the transition. But, in view of the enormity of the government's role and the time needed to build a sufficient pool of investors without a government guarantee, "it should be a decades-long process, at least."

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