Document Type

Case Studies


In September 2008, as the financial crisis that had begun the previous year escalated, the US government appointed a conservator for two government-sponsored enterprises (GSEs), the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), that dominated the secondary mortgage market and were among the largest participants in the global capital markets. The conservatorships were the hallmark of a multipart rescue plan intended to save the firms from insolvency and a disorderly collapse and required the combined and coordinated efforts of several government agencies and instrumentalities. Ultimately, the government invested $191.5 billion into the firms and deployed a range of tools to stabilize them; this intervention was one of the largest undertaken by the government during the Global Financial Crisis and significant for being one of the few nonbank rescues that occurred.

This paper looks at the rescue in totality and the reasons underlying the government’s key decisions on a combined basis. The efforts are generally thought to have been successful in that the firms continued to operate with government funding, continued to support the secondary mortgage market, and losses to their many debt and MBS security holders in the US and abroad (which included many banks and other financial institutions) were avoided, although common and preferred shareholders did suffer losses. Yet, there has been substantial criticism of and legal challenge to some of the government’s actions pursuant to the intervention. More than 10 years later, the firms are still in conservatorship and the fundamental question of their troublesome hybrid structure has not been addressed.