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Handling The Failure Of A Government-Sponsored Enterprise, Richard Scott Carnell

Washington Law Review

Fannie Mae and Freddie Mac are huge, fast-growing, highly leveraged, lightly regulated, and susceptible to failure. Prudence calls for having a legal mechanism adequate for handling their failure. Yet no adequate insolvency mechanism currently exists for them. Unlike ordinary business firms, these government-sponsored enterprises (GSEs) cannot liquidate or reorganize under the Bankruptcy Code. If Fannie Mae or Freddie Mac became sufficiently troubled, its regulator could appoint a conservator to take control of the firm and attempt to restore its financial health. But by then the firm's problems could well have become too severe for the conservator to resolve. The conservatorship …