Broken Promises to Fannie and Freddie Investors
former chairman of the Federal Deposit Insurance Corp
When I headed the FDIC, the widespread banking and savings and loan crises were threatening to destabilize the world's financial system. The FDIC and Federal Reserve worked with countless financial institutions and private investors to help stabilize the industry and prevent the crisis from raging out of control. Private capital stepped up, often with little or no time for due diligence, because investors could trust the United States to keep its word.
The government's behavior during and after the most recent financial crisis is having the opposite effect. By changing the rules in the middle of the game, the government has not only violated its responsibility as a conservator, it has undercut the FDIC's and the Federal Reserve's ability to work effectively with private capital in future crises.
Private capital won't show up when the rule of law is subverted, as it has been so dramatically in the case of Fannie and Freddie. The government's actions are wrong and terribly short-sighted; if not reversed, they will come back to haunt us during the next crisis.
William M. Isaac, a former chairman of the Federal Deposit Insurance Corp.,