Document Type
Book Chapter
Comments
This book chapter predates the author's affiliation with Cornell Law School. It appeared in published form as a chapter in: Robert. W. Kolb, editor, Lessons from the Financial Crisis : Causes, Consequences, and Our Economic Future, Hoboken, N.J. : Wiley, 2010
Abstract
This book chapter describes the role of Fannie Mae and Freddie Mac in the ongoing financial crisis. The chapter first explains the hybrid public-private nature of Fannie and Freddie, which are what is known as Government Sponsored Enterprises (GSEs). Fannie and Freddie were originally chartered by the federal government to create a national mortgage market. The chapter then explains how the two GSEs morphed into extraordinarily large companies that profited enormously from their special relationship with the federal government, while providing only modest benefits to American homeowners. In what turned out to be a disastrous trade-off for American taxpayers, Fannie and Freddie ended up needing a bailout measured in the hundreds of billions of dollars. Ultimately, Fannie and Freddie exhibited the common failings of poor GSE design—after fulfilling their original purpose, they took on monstrously large lives of their own that defied political oversight. The chapter concludes that Fannie and Freddie should be privatized, with their remaining public functions assumed by pure government actors.
Date of Authorship for this Version
2010
Keywords
Federal National Mortgage Association, Fannie Mae, Freddie Mac, Federal Housing Administration, Housing finance, Mortgages
Recommended Citation
Reiss, David J., "Fannie Mae and Freddie Mac: Privatizing Profit and Socializing Loss" (2010). Cornell Law Faculty Working Papers. 159.
https://scholarship.law.cornell.edu/clsops_papers/159