fannie-mae

A potential topic for my second paper could be Fannie Mae and Freddie Mac.  These are government sponsored entities (GSEs) who did have shareholders.  Everyone assumed that they were backed by the US government and therefore limited the risk of investing in them because the government would not let them go bankrupt.  After the recession the government did in fact step in, avoiding bankruptcy, but their share prices lost over 99% of their value from 2007 to the end of 2008.  The share price has yet to recover even a little bit.

It would be interesting to see the interaction between the government, these companies’ shareholder, and their stakeholders during the crisis.  It can be argued that these entities focused far too much on bettering society by offering homes to a wide range of people rather than running a business, or perhaps they were caught up in the same mortgage buying frenzy and profit chasing that Wall Street was.

Fannie Mae and Freddie Mac received the most and second most bailout money, more than any other company.  As of September 2012, Fannie Mae and Freddie Mac have paid back the lowest percentage of their loans than the banks, AIG, or the auto industry.  The two entities received a combined $187 billion bailout and paid back $50 billion of it. There are numerous lawsuits against these companies outstanding, concerning everything from foreclosed properties, securities fraud, and misleading investors.  Adding in the element of government being so closely tied with these companies could certainly put a twist on the classic shareholder/stakeholder debate and make for an interesting paper.

 

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7 responses »

  1. Wes says:

    You bring up an interesting point that Fannie Mae and Freddie Mac focused way too much on their stakeholders bettering society. In my first paper, I discussed a similar theme through discussing the fact that both stakeholder and shareholder ethics contain several flaws. However, I think as a society we tend to only focus on the flaws of shareholder ethics. I think this could be a good theme to maybe bring up in your second paper while discussing the fate of Freddie Mae and Freddie Mac.

  2. Abby says:

    The reason this topic would make such an interesting paper is that there are so many ways you can go with it. There is the stakeholder vs shareholder ethics of the company, the interrelation between the government and Freddie Mae and Freddie Mac, and how this influenced consumer opinion. And given the fact that they have paid back the least amount of their loan, it gives you a solid stand to base your argument. There is definitely a lot to explore with this topic, and I think the second paper would be a great place to expand your current thoughts.

  3. Jordi says:

    There is a Planet Money podcast, I think, that documents the (ugly) history of Harold Raines who was the executive through the 1990s and 00s (I think) who did a lot to spawn the Fannie and Freddie that we see in the history of the GR.

    I am always amused by the label GSEs. I have seen it elsewhere of course, but I always wonder if there are any OTHER GSEs.

    • Loukas T says:

      I got curious so I looked up other GSEs. There are not that many of them.
      The first one was in the 1913 and was the Farmers Credit Union. Other ones you may have heard of are Sallie Mae (student loans) and the Veterans Business Development Center. There are a little over a dozen of them, most are interested in helping housing like Fannie and Freddie.

  4. Jordi says:

    Also, SHon’s post about Mudd may be a useful resource.

    Also, Ava’s on Fannie and Freddie…

    Also, life advice, don’t ever say “fannie” to a British person.

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