A microeconomic analysis of Fannie Mae and Freddie Mac

The most important public policy issues raised by government-sponsored enterprises like Fannie Mae and Freddie Mac revolve around their charters and the perception of government support that goes with the charters, giving them embedded options not available to most other businesses. These options mostly take the form of conjectured guarantees and conjectures about conjectured guarantees. They can be viewed as either subsidies or tools. Of course they are both. Public policy should be about making sure that the options are structured and regulated so that the benefits of GSEs exceed their costs.