Fannie Mae-No Politics (FNMA)

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What did "Too Big to Fail" mean in regards to Freddie Mac and Fannie Mae?

https://www.quora.com/What-did-Too-Big-to-Fail-mean-in-regards-to-Freddie-Mac-and-Fannie-Mae


When an institution is too big to fail, the government has determined that its failure would be too damaging to other institutions with whom it conducts business, to a broad swath of consumers or to financial markets as a whole. Too-big-to-fail institutions are not solely about size. They are deeply interconnected, politically powerful companies that are viewed as integral to the system and worth protecting from collapse.

In the years leading up to the financial crisis of 2008, the United States had two companies that were considered too-big-to-fail —Fannie Mae and Freddie Mac, the mortgage finance giants that were quasi Government Sponsored Enterprises (GSE). The companies had stockholders and highly-paid executives but they also had government mandates to fulfill and rich perquisites associated with their government ties.

Among these perquisites were a trillion dollar line of credit with the United States Treasury, freedom from paying local taxes in Washington, DC, and for many years they did not have to file financial statements with the U.S. Securities and Exchange Commission. But the richest benefit of all was the lower cost of capital that Fannie and Freddie enjoyed because investors who bought their debt believed the companies would not be allowed to fail if they got into trouble. Although this was an implied guarantee until Sept. 2008, this
investor perception turned out to be true.

In the aftermath of the crisis, we have many more too-big-to-fail institutions. All of the major banks that received taxpayer money during the fall of 2008 —Citigroup (company), Wells Fargo (company), JPMorgan Chase (company), Bank of America (company)—are widely perceived as too-politically powerful and interconnected-to-fail. So instead of eliminating the problem of institutions that will be bailed out if they take too many risks that go awry, we have simply enlarged the group of future bailout candidates. And these institutions are larger than they were before the crisis.....

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