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Professor David Reiss Predicted Fannie Mae, Freddie Mac Debacle
Forthcoming Article Promotes Privatization

July 11, 2008 – As the federal government considers a plan to take over Fannie Mae and Freddie Mac, Brooklyn Law School Professor David Reiss is sounding a warning bell. The beleaguered mortgage finance companies’ plummeting stock prices, combined with the larger crises in the housing market, has regulators worried that they will default on their debt.


Read Professor Reiss’ Op Ed in the National Law Journal.

Read Professor Reiss’ article on Fannie Mae and Freddie Mac.

Read The New York Times' article, “Woes at Loan Agencies and Oil-Price Spike Roil Markets.”

Professor Reiss quoted in Financial Services Law 360 article on Fannie and Freddie.

Read more about Professor Reiss.

In fact, Reiss raised the alarm about this very scenario a year ago when he wrote an article, “The Federal Government's Implied Guarantee of Fannie Mae and Freddie Mac's Obligations: Uncle Sam Will Pick Up the Tab,” which is forthcoming in the Georgia Law Review. In the article, he analyzes the federal government’s implied guarantee of Fannie and Freddie’s mortgage-related obligations, which together total nearly $5 trillion. Arguing that the government’s implied guarantee is already essentially a contingent liability of the federal government, Reiss says that Fannie and Freddie should be privatized and that the implied guarantee should be terminated.

“The federal government’s developing plan to take over Fannie and Freddie would essentially result in a situation that allows privatization of profit but socialization of risk,” explains Reiss. “The companies’ shareholders have reaped the profits, but if the government takes them over, we taxpayers are going to have to pay off the losses.”

This is the second time in the last two years that Reiss has predicted a major development in the markets. In 2006, he published a law review article, “Subprime Standardization: How Rating Agencies Allow Predatory Lending to Flourish in the Secondary Mortgage Market” that flagged conflict of interest problems with rating agencies long before they came under scrutiny for failing to accurately assess the risks involved in investing in the subprime mortgage market.

He is currently working on a theoretical piece about Fannie Mae and Freddie Mac that addresses whether and when the government should create such entities.



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This page last modified on: July 18, 2008.