The rescue of Fannie Mae and Freddie Mac

W Frame, Andreas Fuster, Joseph Tracy and James Vickery ()

No 719, Staff Reports from Federal Reserve Bank of New York

Abstract: We describe and evaluate the measures taken by the U.S. government to rescue Fannie Mae and Freddie Mac in September 2008. We begin by outlining the business model of these two firms and their role in the U.S. housing finance system. Our focus then turns to the sources of financial distress that the firms experienced and the events that ultimately led the government to take action in an effort to stabilize housing and financial markets. We describe the various resolution options available to policymakers at the time and evaluate the success of the choice of conservatorship, and other actions taken, in terms of five objectives that we argue an optimal intervention would have fulfilled. We conclude that the decision to take the firms into conservatorship and invest public funds achieved its short-run goals of stabilizing mortgage markets and promoting financial stability during a period of extreme stress. However, conservatorship led to tensions between maximizing the firms? value and achieving broader macroeconomic objectives, and, most importantly, it has so far failed to produce reform of the U.S. housing finance system.

Keywords: Fannie Mae; housing finance; financial crisis; government intervention; Freddie Mac (search for similar items in EconPapers)
JEL-codes: G01 G21 H12 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2015-03-01
New Economics Papers: this item is included in nep-ure
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Citations: View citations in EconPapers (20)

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Related works:
Journal Article: The Rescue of Fannie Mae and Freddie Mac (2015)
Working Paper: The rescue of Fannie Mae and Freddie Mac (2015)
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