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Yes would be the first answer likely to be uttered from the lips of homeowners and financial professionals, but few of those in agreement would be able to tell you why.

Federal Reserve Chairman Alan Greenspan spoke last week about these two government sponsored behemoths in terms that are worth noting. But to the average individual, these institutions, created by Congress and therefore given the illusion of monetary backing from the government, are as important to their future as air and water. Greenspan's remarks suggested that the financial future of this country may be in jeopardy because of the sheer size of these companies.

Freddie Mac and Fannie Mae are long term holders of mortgages, performing a function that banks cannot for homeowners. Banks and thrifts are usually short term issuers of mortgage debt. To keep themselves liquid and able to compete in the marketplace, they sell these mortgages to Fannie and Freddie who in turn bundles them into investments.

These long term loans at low interest rates pose a risk reminiscent of the savings and loan debacle of the late eighties. This has Greenspan worried and his worrying can be contagious. How much has yet to be determined. Congress has made some posturing type movement but don't count on any real legislation coming from it.

Often referred to as government sponsored enterprises or GSEs, the confusion begins with their names. By placing the word federal in both titles, the assumption that this is a government back program have led many to believe that no matter what happens, these companies will still be here.

Greenspan's suggestion would unravel this package. The top banker believes that these loans would be better held by banks. There are problems with this that could have larger and more lasting effects on the housing market and the financial ability of, as Fannie points out, the growth of potential home buyers in this country in the coming years. That growth towards the end of this decade is estimated at an additional thirty million new customers.

If Greenspan gets his way, you can count on an increase in interest rates. There would be a substantial boost at first, according to several folks that I spoke with and this would put an immediate crimp on new buyers. With the current worth of homes in the neighborhood of $14 trillion and the debt on those homes at just under $8 trillion, two things would happen if the change is made.

The value of these homes would plummet making the debt to equity narrower. This generation of home owners views their homes as a cash reserve, borrowing liberally against these inflated values. Pump those rates up to 8% and possibly even 9%, and this part of the economic spending support would nosedive.

Putting the banks in charge of these long term loans would also mean the demise of the fixed rate mortgage. Banks will not carry long term fixed risk the way Fannie and Freddie do. But Fannie and Freddie do it for shareholders not for the owners of the loans they own. In their business, hundredths of percentage points are worth millions of profit dollars.

If Congress would privatize these two giants, the first problem they would face would come from anti-trust laws. But that doesn't make the issue of government sponsorship go away by any stretch. In all likelihood it would transfer, at least in part from Fannie and Freddie to the Federal Home Loan Bank System, the source of funds used by banks.

The pace of home purchasing would slow and the influx of quick cash from outlandish home equity valuations would dry up in a hurry. Conversely, the price of new homes would be lower as the money to purchase them becomes more expensive.

Does Greenspan's concerns have legs? Yes if you are concerned about continued growth in these companies. The interest spread is coming close to dangerous distances (currently 1.3%) and the ability to match assets to liabilities has become increasingly tricky. And no, if you believe that the increased risk is worth leaving things right as they are.

Today's Commentary: 03.02.04
A Three Legged Stool: Making Social Security Part of the Plan

Last week, I alluded to a blue ribbon commission that was formed in 1983 to study the fate of Social Security. The panel was asked to come up with a plan for the program which was heading towards its fiftieth year with some looming concerns. Mr. Greenspan was part of the National Commission on Social Security Reform brought together during the Reagan presidency to fix what Carter was unable to repair. Due to what was called actuarial unsoundness, the program was under scrutiny for its failure to adequately fund the future retirees based on the amount of money that it was currently receiving through taxes. The much younger Greenspan suggested that several things needed to be done, which became an amendment on April 14th of that year.

And he basically reiterated these points last week before the House Finance Committee. So why the surprise? Why the sudden explosion in workplace conversations concerning the future of their own retirements? It is probably denial accompanied by the belief that the program would somehow survive all of these economic forecasts.

Several other reform measures were enacted to try to save the program. In 1985, the money collected was moved "off-budget" so that the true balance in the fund could be more easily calculated. By 1993, the average American saw their payroll taxes increase to 12.4%, half paid by them, the other half by their employer. But this didn't seem to help the program as reports of future bankruptcies were rumored. Three years later, the predictions of doom returned with fund deficits beginning in earnest in 2012 along with complete bankruptcy just seventeen more years down the road.

Those dire predictions were now accompanied by cold hard facts. The only way the program could survive was by slashing benefits as much as 30% even with payroll tax increases of 6 additional percentage points. But the results of Greenspan's efforts started to show some promise with the accumulation of $1.8 trillion collected by 2000, the year the benefit age was rolled back to 67 from 65. This was because of a change in thought from pay as you go to a pay in advance system. But that proved as illusory as well.

The government eyeballed that unguarded nest egg as far too tempting. So that growing surplus, which was supposed to make the program last longer and possibly even help it become solvent in the long term was replaced by IOUs, essentially making a promise based on a promise.

We have a right to feel gullible and betrayed. Even as those water cooler types make this a topic of conversation, they are beginning to sound like alarmists to younger co-workers, many of whom feel as though they are paying into a program that won't be there for them. But older workers should tell them that they have been buying a much more tangible product: a promise.

This promise, like many promises are, is only as good as the person or persons making it.

The Greenspan Commission had, to a certain degree, delivered exactly what it promised. The increased taxes, cost of living adjustments, a roll back in benefits for early retirees and an increase in age requirements for full benefits all contributed to the growth of that surplus of money.

John Attarian, an independent scholar and writer in Ann Arbor, Michigan, in an article posted at Mises.org on Mar 7, 2003, suggested that this was Byzantine cunning. He wrote that , "while benefit taxation hit only the richest beneficiaries when enacted, even with the modest rates of inflation which the Social Security actuaries' intermediate analysis assumed, a $25,000 income in 2030 would have less purchasing power than an income of $4,000 in the mid-1980s!"

But the promise that Greenspan made last week was another offer of a means test with the inflation index as the tool. Using the much smaller standard of measure, the one the excludes food and fuel, the government could plan on paying less at the very time when it needs to be paying back those IOUs and making good on future payments, the ones that are currently being made.

But the most troubling part of the picture is not how this happened, but how we allowed ourselves to be backed into a retirement corner. Social Security was meant to help in retirement, not be the sole source of revenue for those who have stopped working.

Too often, seniors find themselves with Social Security as their only source of retirement income. Poor pension planning has turned saving for the future seem like additional taxation. While 6.2% in payroll taxes (the employees portion) seemed adequate, many folks put far less than that away in some sort of pension plan on their own. Add to that the savings reducing effects of personal debt, and this new crop of employee is facing a future that our current system is ill prepared to handle.

Mr. Greenspan understands that he can only realistically address the possibility of the problems facing us. If he were to express too much concern over the saving habits of the average American, he might stop what growth we are getting dead in its tracks. Suggesting a new inflation index simply buys a few more months of low interest rates, the only real catalyst to the current recovery, while postponing insolvency to the next generation of politician and taxpayer.

If he were to suggest that the administration stop spending more than they take in, the real debate would not be the future insolvency of Social Security but the possibility that tax cuts should not be made permanent. But he didn't. Instead, Mr. Greenspan threw an economic bone to the White House by supporting the making the tax cuts permanent with the caveat of reduced spending.

But it is hard to tell what the ever cryptic Greenspan really means. Does he want Congress to control spending with taxes or control the deficits by not spending? Perhaps it doesn't matter.

Whatever he means to say and however the conversation in the lunchroom goes, the onus of our retirement needs is still on our shoulders. So what if our elected officials don't practice any kind of forethought. We should. That means that when it comes time to spend any money, we should evaluate the effects on how it will benefit us and what it will do to us twenty or more years down the road. But the job of saving for one's own future has gotten much harder.

Those tax cuts may have undermined the system and our meager efforts at future planning much more than previously thought. In a recent New York Times article by David Cay Johnston pointed out the disproportions in those tax cuts that loom larger for the middle class than for the wealthy. Mr. Johnston wrote that if you combine the 6.2% Social Security tax with the average Americans tax bill of 15.3%, the total would exceed the reduced 17 cents on the dollar that the top 400 richest tax payers paid with the Bush tax cuts.