FIN 305 Lecture 19: FIN305 Class 19
Document Summary
Try to stop panics and deleveraging by adding liquidity to the financial system and/or trying to restore investor confidence. Making loans to worthy borrowers who find themselves shut off to normal sources of borrowing. Established with government charters so they were still susceptible to political pressure. Beginning with clinton"s administration in the 90"s fannie and freddie were. Encouraged to buy loans made to low-income borrowers. Banks were able to make loans to riskier borrowers, make $ with origination fees, and sell the time bomb off to the gses. Accumulated higher levels of debt than private companies could because investors considered their debt to be implicitly backed by the u. s. government (see articles) Enabled the gov"t to temporarily run them without having to add their debt to their own books. One of the largest government interventions in private financial markets in history. Two major downsides to bailing out fannie and freddie:
