In his first major speech since The White House got their ‘flexible’ man in to manage the GSEs, Mel Watt outlined his strategic plan for Fannie Mae and Freddie Mac. Predicated on the maintenance of liquidity, competition, and resilience of the national housing finance market, Watt’s remarkably blind to the past proposal will, as CNBC’s Rick Santelli warns, create Subprime 2.0. Easing lending standards, not lowering limits, and raising the possibility of principal reduction seems to do anything but reduce taxpayer risk and merely creates more perverse incentives.