the government bonds, the private bonds and a brand new category called the agency bonds which reflected the higher than government but lower than private risk of these agencies.įreddie Mac, Fannie Man and Ginnie Mae got an advantage of 25 to 40 basis points in the bond market. There were three categories of bonds in the market i.e. It is for this reason that the bonds issues by these agencies to raise money were issued at a lower rate of interest than the private parties. Hence if you were a lender in the bond market, lending money to these agencies would also be considered relatively risk free because there was an implicit backing of the US government. Agency BondsĪs we can see from the above point that the securities sold by Freddie Mac, Fannie Man and Ginnie Mae were relatively risk free. A failure on the part of Freddie Mac, Fannie Man and Ginnie Mae to repay their loans would imply a failure of the United States government and that would be the beginning of a world-wide catastrophe. This is because the market bought these loans on the assumption that the US government and the US taxpayers were implicitly backing them. When the crisis did break out, the government was forced to extend these credit lines by many more billions and immediately rescue Freddie Mac, Fannie Man and Ginnie Mae. Hence, even in a non crisis situation, these agencies could simply borrow money from the government. The Federal Government had provided billions of dollars in lines of credit to these agencies as a part of their charter. When the crisis finally broke out in 2008, the first people to receive help were these government agencies. This is because they are partly the creation of the government. The market had a collective belief that agencies like Freddie Mac, Fannie Man and Ginnie Mae cannot fail. Lets have a look at some of the special advantages that were conferred upon Freddie Mac, Fannie Man and Ginnie Mae. In this article, we will cover this question in detail.

In the case of Freddie Mac, Fannie Man and Ginnie Mae this was most likely true. The foremost question that arises is that the stockholders of a government company will obviously have some major advantages over their private counterparts. We understood that these organizations are hybrid in nature and that their stock is sold on the stock exchange whereas at the same time, they have a government charter! The exact nature of these organizations is subject to a lot of debate. In the previous article, we covered the history and the roots of special government agencies called Freddie Mac, Fannie Man and Ginnie Mae.

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