Stealing Fannie and Freddie

7 Pages Posted: 29 Apr 2014

See all articles by Jonathan R. Macey

Jonathan R. Macey

Yale Law School; European Corporate Governance Institute (ECGI)

Logan Beirne

Yale University - Law School

Date Written: April 27, 2014

Abstract

"The housing market accounts for nearly 20 percent of the American economy, so it is critical that we have a strong and stable housing finance system that is built to last," declares the Senate Banking Committee Leaders’ Bipartisan Housing Finance Reform Draft. The proposed legislation’s first step towards this laudable goal, however, is to liquidate the government-sponsored enterprises Fannie Mae and Freddie Mac – in defiance of the rule of law. This paper analyzes the current House and Senate housing finance reform proposals and faults their modes of liquidation for departing from legal norms, thereby harming investors and creditors, taxpayers, and the broader economy.

Under proposals before Congress, virtually everyone loses. First, the GSEs’ shareholders’ property rights are violated. Second, taxpayers face the potential burden of the GSEs’ trillions in liabilities without dispensing via the orderly and known processes of a traditional bankruptcy proceeding or keeping the debts segregated as the now-profitable GSEs seek to pay them down. Finally, the rule of law is subverted, thereby making lending and business in general a riskier proposition when the country and global economy are left to the political whims of the federal government.

Suggested Citation

Macey, Jonathan R. and Beirne, Logan, Stealing Fannie and Freddie (April 27, 2014). Available at SSRN: https://ssrn.com/abstract=2429974 or http://dx.doi.org/10.2139/ssrn.2429974

Jonathan R. Macey

Yale Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States
+203-432-7913 (Phone)
+203-4871 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Logan Beirne (Contact Author)

Yale University - Law School ( email )

127 Wall St
New Haven, CT 06511

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