Overview

The U.S. economy - and by extension, the global financial system - has a lot riding on Fannie and Freddie. They cannot fail, yet that is precisely what these mortgage giants are guaranteed to do. How can we limit the damage and avoid making the same mistakes in the future? Guaranteed to Fail explains how poorly designed government guarantees for Fannie Mae and Freddie Mac led to the debacle of mortgage finance in the United States, weighs different reform proposals, and provides sensible, practical recommendations. Despite repeated calls for tougher action, Washington has expanded the scope of its guarantees to Fannie and Freddie, fuelling more and more housing and mortgages all across the economy. This book unravels the dizzyingly immense, highly interconnected businesses of Fannie and Freddie. It proposes a unique model of reform that emphasizes public-private partnership, one that can serve as a blueprint for better organizing and managing government-sponsored enterprises like Fannie Mae and Freddie Mac. In doing so, Guaranteed to Fail strikes a cautionary note about excessive government intervention in markets. It is a note that is as relevant in India and this special edition includes a chapter on government- sponsored enterprises which, in the light of what happened to UTI's flagship scheme US-64, shows the possible repercussions of such interventions.

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9789350290651

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Reviews

[T]hought-provoking . . . -- Gillian Tett, Financial Times [ Guaranteed to Fail ] is more multi-dimensional and nuanced than most other books on the bloody crossroads where real estate and banking meet. . . . [The] authors show convincingly that the GSEs' subprime lending was not a noble idea that eventually went wrong or drifted into excesses--it was a fool's errand from the beginning. -- Financial Times In Guaranteed to Fail , a quartet of New York University professors from its Stern School of Business, focus on the 'debacle of mortgage finance' that Fannie and Freddie helped create, and offer a plan for reform. In clear language, and with plenty of data to support their arguments, the authors provide a concise but comprehensive history of the GSEs--which alone makes their book worth reading. -- Barron's [T]he authors provide a detailed template for reform. -- The Economist Guaranteed to Fail: Fannie Mae, Freddie Mac, and the Debacle of Mortgage Finance , stands out among all the others. . . . [I]t is one of the very few books to focus squarely on the ultimate cause of the crisis: US government housing policy and the role of the two government-backed mortgage giants Freddie Mac and Fannie Mae in giving effect to that policy.--Stephen Kirchner The Conversation [T]hought-provoking . . .--Gillian Tett Financial Times [A] valuable book on how two quasi-public companies became 'the world's largest and most leveraged hedge fund'. . . . A balanced study, [ Guaranteed to Fail ] rises above a clash between partisans on the right--who call the companies 'ground zero' in the meltdown--and those on the left who blame deregulation and Wall Street excess. . . . Part primer, part policy prescription, the text explains in simple language what these entities are, how they got so big, and why we must fix them.--James Pressley Bloomberg News This book should, without question, play an important role in the policy discussion of how to reform the mortgage market. Its accessible explanation of the GSEs' growth and behavior, and its detail and care in suggesting the direction for housing finance to go--and how to get it there--are its strengths. In terms of audience, the book seems more oriented toward policy discussions than academic ones. . . . As a whole, it provides a useful overview of the rise and fall of the GSEs, and is a worthwhile read for those interested in understanding the recent crisis.--Daniel K. Fetter Journal of Economic Literature No one can accuse the authors of failing to offer solutions to the problems they so thoroughly document. . . . One can only hope that some trace of the constructive approach of Guaranteed to Fail will inform the ongoing debate in Washington on the vitally important question of the future structure of the U.S. mortgage market.--Martin S. Fridson Financial Analyst Journal [T]he scholarly NYU tome focuses on policy mistakes and perverse incentives. . . . The Stern School economists [highlight the] 'race to the bottom' among mortgage lenders . . . [who] responded by 'moving down the credit curve of increasingly shaky mortgage loans.' . . . Bad lending begat worse lending.--Robert J. Samuelson Claremont Review of Books They combine in an ideal way research and political consulting, resulting in an easy-to-read book that nevertheless has the necessary in-depth analysis. The book is rich with quotes from the past suggesting that everybody should have seen the imminent disaster.--Rico von Wyss Financial Markets and Portfolio Management [ Guaranteed to Fail ] is more multi-dimensional and nuanced than most other books on the bloody crossroads where real estate and banking meet. . . . [The] authors show convincingly that the GSEs' subprime lending was not a noble idea that eventually went wrong or drifted into excesses--it was a fool's errand from the beginning. -- Financial Times [A] valuable book on how two quasi-public companies became 'the world's largest and most leveraged hedge fund'. . . . A balanced study, [ Guaranteed to Fail ] rises above a clash between partisans on the right--who call the companies 'ground zero' in the meltdown--and those on the left who blame deregulation and Wall Street excess. . . . Part primer, part policy prescription, the text explains in simple language what these entities are, how they got so big, and why we must fix them. --James Pressley, Bloomberg News In Guaranteed to Fail , a quartet of New York University professors from its Stern School of Business, focus on the 'debacle of mortgage finance' that Fannie and Freddie helped create, and offer a plan for reform. In clear language, and with plenty of data to support their arguments, the authors provide a concise but comprehensive history of the GSEs--which alone makes their book worth reading. -- Barron's Guaranteed to Fail: Fannie Mae, Freddie Mac, and the Debacle of Mortgage Finance , stands out among all the others. . . . [I]t is one of the very few books to focus squarely on the ultimate cause of the crisis: US government housing policy and the role of the two government-backed mortgage giants Freddie Mac and Fannie Mae in giving effect to that policy. --Stephen Kirchner, The Conversation (Australia) [T]hought-provoking . . . --Gillian Tett, Financial Times [T]he authors provide a detailed template for reform. -- The Economist No one can accuse the authors of failing to offer solutions to the problems they so thoroughly document. . . . One can only hope that some trace of the constructive approach of Guaranteed to Fail will inform the ongoing debate in Washington on the vitally important question of the future structure of the U.S. mortgage market. --Martin S. Fridson, Financial Analyst Journal This book should, without question, play an important role in the policy discussion of how to reform the mortgage market. Its accessible explanation of the GSEs' growth and behavior, and its detail and care in suggesting the direction for housing finance to go--and how to get it there--are its strengths. In terms of audience, the book seems more oriented toward policy discussions than academic ones. . . . As a whole, it provides a useful overview of the rise and fall of the GSEs, and is a worthwhile read for those interested in understanding the recent crisis. --Daniel K. Fetter, Journal of Economic Literature [T]he scholarly NYU tome focuses on policy mistakes and perverse incentives. . . . The Stern School economists [highlight the] 'race to the bottom' among mortgage lenders . . . [who] responded by 'moving down the credit curve of increasingly shaky mortgage loans.' . . . Bad lending begat worse lending. --Robert J. Samuelson, Claremont Review of Books They combine in an ideal way research and political consulting, resulting in an easy-to-read book that nevertheless has the necessary in-depth analysis. The book is rich with quotes from the past suggesting that everybody should have seen the imminent disaster. --Rico von Wyss, Financial Markets and Portfolio Management Guaranteed to Fail is one of the more comprehensive and informative books on the financial crisis. In addition to its relevance to the policy debate on homeownership and government guarantees, the book has numerous pedagogical strengths. Each chapter is well-organized, contains numerous charts and graphs, and has incredible detail regarding legislation, announcements, and media reports that impacted the housing market since the 1930s. The appendix, with a timeline of US housing finance milestones and a 32-page blueprint for reform, highlight the great effort that went into the creation of this work. --Cynthia Bansak and Peter Carpenter, Eastern Economic Journal The [authors] combine in an ideal way research and political consulting, resulting in an easy-to-read book that nevertheless has the necessary in-depth analysis. The book is rich with quotes from the past suggesting that everybody should have seen the imminent disaster. --Rico von Wyss, Swiss Society for Financial Market Research [T]he scholarly NYU tome focuses on policy mistakes and perverse incentives. . . . The Stern School economists [highlight the] 'race to the bottom' among mortgage lenders . . . [who] responded by 'moving down the credit curve of increasingly shaky mortgage loans.' . . . Bad lending begat worse lending. --Robert J. Samuelson Claremont Review of Books This book should, without question, play an important role in the policy discussion of how to reform the mortgage market. Its accessible explanation of the GSEs' growth and behavior, and its detail and care in suggesting the direction for housing finance to go--and how to get it there--are its strengths. In terms of audience, the book seems more oriented toward policy discussions than academic ones. . . . As a whole, it provides a useful overview of the rise and fall of the GSEs, and is a worthwhile read for those interested in understanding the recent crisis. --Daniel K. Fetter Journal of Economic Literature No one can accuse the authors of failing to offer solutions to the problems they so thoroughly document. . . . One can only hope that some trace of the constructive approach of Guaranteed to Fail will inform the ongoing debate in Washington on the vitally important question of the future structure of the U.S. mortgage market. --Martin S. Fridson Financial Analyst Journal [T]hought-provoking . . . --Gillian Tett Financial Times Guaranteed to Fail: Fannie Mae, Freddie Mac, and the Debacle of Mortgage Finance , stands out among all the others. . . . [I]t is one of the very few books to focus squarely on the ultimate cause of the crisis: US government housing policy and the role of the two government-backed mortgage giants Freddie Mac and Fannie Mae in giving effect to that policy. --Stephen Kirchner The Conversation [A] valuable book on how two quasi-public companies became 'the world's largest and most leveraged hedge fund'. . . . A balanced study, [ Guaranteed to Fail ] rises above a clash between partisans on the right--who call the companies 'ground zero' in the meltdown--and those on the left who blame deregulation and Wall Street excess. . . . Part primer, part policy prescription, the text explains in simple language what these entities are, how they got so big, and why we must fix them. --James Pressley Bloomberg News Guaranteed to Fail: Fannie Mae, Freddie Mac, and the Debacle of Mortgage Finance , stands out among all the others. . . . [I]t is one of the very few books to focus squarely on the ultimate cause of the crisis: US government housing policy and the role of the two government-backed mortgage giants Freddie Mac and Fannie Mae in giving effect to that policy.--Stephen Kirchner The Conversation [T]he authors provide a detailed template for reform. -- The Economist [T]hought-provoking . . . -- Gillian Tett, Financial Times In Guaranteed to Fail , a quartet of New York University professors from its Stern School of Business, focus on the 'debacle of mortgage finance' that Fannie and Freddie helped create, and offer a plan for reform. In clear language, and with plenty of data to support their arguments, the authors provide a concise but comprehensive history of the GSEs--which alone makes their book worth reading. -- Barron's [ Guaranteed to Fail ] is more multi-dimensional and nuanced than most other books on the bloody crossroads where real estate and banking meet. . . . [The] authors show convincingly that the GSEs' subprime lending was not a noble idea that eventually went wrong or drifted into excesses--it was a fool's errand from the beginning. -- Financial Times

"[T]hought-provoking . . . -- Gillian Tett, Financial Times [""Guaranteed to Fail""] is more multi-dimensional and nuanced than most other books on the bloody crossroads where real estate and banking meet. . . . [The] authors show convincingly that the GSEs' subprime lending was not a noble idea that eventually went wrong or drifted into excesses--it was a fool's errand from the beginning. -- ""Financial Times In ""Guaranteed to Fail"", a quartet of New York University professors from its Stern School of Business, focus on the 'debacle of mortgage finance' that Fannie and Freddie helped create, and offer a plan for reform. In clear language, and with plenty of data to support their arguments, the authors provide a concise but comprehensive history of the GSEs--which alone makes their book worth reading. -- ""Barron's [T]he authors provide a detailed template for reform. -- ""The Economist ""Guaranteed to Fail: Fannie Mae, Freddie Mac, and the Debacle of Mortgage Finance"", stands out among all the others. . . . [I]t is one of the very few books to focus squarely on the ultimate cause of the crisis: US government housing policy and the role of the two government-backed mortgage giants Freddie Mac and Fannie Mae in giving effect to that policy.--Stephen Kirchner ""The Conversation "" [T]hought-provoking . . .--Gillian Tett ""Financial Times "" [A] valuable book on how two quasi-public companies became 'the world's largest and most leveraged hedge fund'. . . . A balanced study, [""Guaranteed to Fail""] rises above a clash between partisans on the right--who call the companies 'ground zero' in the meltdown--and those on the left who blame deregulation and Wall Street excess. . . . Part primer, part policy prescription, the text explains in simple language what these entities are, how they got so big, and why we must fix them.--James Pressley ""Bloomberg News "" This book should, without question, play an important role in the policy discussion of how to reform the mortgage market. Its accessible explanation of the GSEs' growth and behavior, and its detail and care in suggesting the direction for housing finance to go--and how to get it there--are its strengths. In terms of audience, the book seems more oriented toward policy discussions than academic ones. . . . As a whole, it provides a useful overview of the rise and fall of the GSEs, and is a worthwhile read for those interested in understanding the recent crisis.--Daniel K. Fetter ""Journal of Economic Literature "" No one can accuse the authors of failing to offer solutions to the problems they so thoroughly document. . . . One can only hope that some trace of the constructive approach of ""Guaranteed to Fail"" will inform the ongoing debate in Washington on the vitally important question of the future structure of the U.S. mortgage market.--Martin S. Fridson ""Financial Analyst Journal "" [T]he scholarly NYU tome focuses on policy mistakes and perverse incentives. . . . The Stern School economists [highlight the] 'race to the bottom' among mortgage lenders . . . [who] responded by 'moving down the credit curve of increasingly shaky mortgage loans.' . . . Bad lending begat worse lending.--Robert J. Samuelson ""Claremont Review of Books "" They combine in an ideal way research and political consulting, resulting in an easy-to-read book that nevertheless has the necessary in-depth analysis. The book is rich with quotes from the past suggesting that everybody should have seen the imminent disaster.--Rico von Wyss ""Financial Markets and Portfolio Management "" ""[""Guaranteed to Fail""] is more multi-dimensional and nuanced than most other books on the bloody crossroads where real estate and banking meet. . . . [The] authors show convincingly that the GSEs' subprime lending was not a noble idea that eventually went wrong or drifted into excesses--it was a fool's errand from the beginning.""--""Financial Times"" ""[A] valuable book on how two quasi-public companies became 'the world's largest and most leveraged hedge fund'. . . . A balanced study, [""Guaranteed to Fail""] rises above a clash between partisans on the right--who call the companies 'ground zero' in the meltdown--and those on the left who blame deregulation and Wall Street excess. . . . Part primer, part policy prescription, the text explains in simple language what these entities are, how they got so big, and why we must fix them.""--James Pressley, ""Bloomberg News"" ""In ""Guaranteed to Fail"", a quartet of New York University professors from its Stern School of Business, focus on the 'debacle of mortgage finance' that Fannie and Freddie helped create, and offer a plan for reform. In clear language, and with plenty of data to support their arguments, the authors provide a concise but comprehensive history of the GSEs--which alone makes their book worth reading.""--""Barron's"" """"Guaranteed to Fail: Fannie Mae, Freddie Mac, and the Debacle of Mortgage Finance"", stands out among all the others. . . . [I]t is one of the very few books to focus squarely on the ultimate cause of the crisis: US government housing policy and the role of the two government-backed mortgage giants Freddie Mac and Fannie Mae in giving effect to that policy.""--Stephen Kirchner, ""The Conversation"" (Australia) ""[T]hought-provoking . . .""--Gillian Tett, ""Financial Times"" ""[T]he authors provide a detailed template for reform.""--""The Economist"" ""No one can accuse the authors of failing to offer solutions to the problems they so thoroughly document. . . . One can only hope that some trace of the constructive approach of ""Guaranteed to Fail"" will inform the ongoing debate in Washington on the vitally important question of the future structure of the U.S. mortgage market.""--Martin S. Fridson, ""Financial Analyst Journal"" ""This book should, without question, play an important role in the policy discussion of how to reform the mortgage market. Its accessible explanation of the GSEs' growth and behavior, and its detail and care in suggesting the direction for housing finance to go--and how to get it there--are its strengths. In terms of audience, the book seems more oriented toward policy discussions than academic ones. . . . As a whole, it provides a useful overview of the rise and fall of the GSEs, and is a worthwhile read for those interested in understanding the recent crisis.""--Daniel K. Fetter, ""Journal of Economic Literature"" ""[T]he scholarly NYU tome focuses on policy mistakes and perverse incentives. . . . The Stern School economists [highlight the] 'race to the bottom' among mortgage lenders . . . [who] responded by 'moving down the credit curve of increasingly shaky mortgage loans.' . . . Bad lending begat worse lending.""--Robert J. Samuelson, ""Claremont Review of Books"" ""They combine in an ideal way research and political consulting, resulting in an easy-to-read book that nevertheless has the necessary in-depth analysis. The book is rich with quotes from the past suggesting that everybody should have seen the imminent disaster.""--Rico von Wyss, ""Financial Markets and Portfolio Management"" """"Guaranteed to Fail"" is one of the more comprehensive and informative books on the financial crisis. In addition to its relevance to the policy debate on homeownership and government guarantees, the book has numerous pedagogical strengths. Each chapter is well-organized, contains numerous charts and graphs, and has incredible detail regarding legislation, announcements, and media reports that impacted the housing market since the 1930s. The appendix, with a timeline of US housing finance milestones and a 32-page blueprint for reform, highlight the great effort that went into the creation of this work.""--Cynthia Bansak and Peter Carpenter, ""Eastern Economic Journal"" ""The [authors] combine in an ideal way research and political consulting, resulting in an easy-to-read book that nevertheless has the necessary in-depth analysis. The book is rich with quotes from the past suggesting that everybody should have seen the imminent disaster.""--Rico von Wyss, ""Swiss Society for Financial Market Research"" [""Guaranteed to Fail""] is more multi-dimensional and nuanced than most other books on the bloody crossroads where real estate and banking meet. . . . [The] authors show convincingly that the GSEs' subprime lending was not a noble idea that eventually went wrong or drifted into excesses--it was a fool's errand from the beginning. -- Financial Times In ""Guaranteed to Fail"", a quartet of New York University professors from its Stern School of Business, focus on the 'debacle of mortgage finance' that Fannie and Freddie helped create, and offer a plan for reform. In clear language, and with plenty of data to support their arguments, the authors provide a concise but comprehensive history of the GSEs--which alone makes their book worth reading. -- Barron's [T]hought-provoking . . . -- Gillian Tett, Financial Times [T]he authors provide a detailed template for reform. -- The Economist ""Guaranteed to Fail: Fannie Mae, Freddie Mac, and the Debacle of Mortgage Finance"", stands out among all the others. . . . [I]t is one of the very few books to focus squarely on the ultimate cause of the crisis: US government housing policy and the role of the two government-backed mortgage giants Freddie Mac and Fannie Mae in giving effect to that policy.--Stephen Kirchner ""The Conversation "" [A] valuable book on how two quasi-public companies became 'the world's largest and most leveraged hedge fund'. . . . A balanced study, [""Guaranteed to Fail""] rises above a clash between partisans on the right--who call the companies 'ground zero' in the meltdown--and those on the left who blame deregulation and Wall Street excess. . . . Part primer, part policy prescription, the text explains in simple language what these entities are, how they got so big, and why we must fix them. --James Pressley ""Bloomberg News "" ""Guaranteed to Fail: Fannie Mae, Freddie Mac, and the Debacle of Mortgage Finance"", stands out among all the others. . . . [I]t is one of the very few books to focus squarely on the ultimate cause of the crisis: US government housing policy and the role of the two government-backed mortgage giants Freddie Mac and Fannie Mae in giving effect to that policy. --Stephen Kirchner ""The Conversation "" [T]hought-provoking . . . --Gillian Tett ""Financial Times "" No one can accuse the authors of failing to offer solutions to the problems they so thoroughly document. . . . One can only hope that some trace of the constructive approach of ""Guaranteed to Fail"" will inform the ongoing debate in Washington on the vitally important question of the future structure of the U.S. mortgage market. --Martin S. Fridson ""Financial Analyst Journal "" This book should, without question, play an important role in the policy discussion of how to reform the mortgage market. Its accessible explanation of the GSEs' growth and behavior, and its detail and care in suggesting the direction for housing finance to go--and how to get it there--are its strengths. In terms of audience, the book seems more oriented toward policy discussions than academic ones. . . . As a whole, it provides a useful overview of the rise and fall of the GSEs, and is a worthwhile read for those interested in understanding the recent crisis. --Daniel K. Fetter ""Journal of Economic Literature "" [T]he scholarly NYU tome focuses on policy mistakes and perverse incentives. . . . The Stern School economists [highlight the] 'race to the bottom' among mortgage lenders . . . [who] responded by 'moving down the credit curve of increasingly shaky mortgage loans.' . . . Bad lending begat worse lending. --Robert J. Samuelson ""Claremont Review of Books """

The [authors] combine in an ideal way research and political consulting, resulting in an easy-to-read book that nevertheless has the necessary in-depth analysis. The book is rich with quotes from the past suggesting that everybody should have seen the imminent disaster. --Rico von Wyss, Swiss Society for Financial Market Research

Author Information

iral V. Acharya, Matthew Richardson, Stijn Van Nieuwerburgh, and Lawrence J. White are professors at the Leonard N. Stern School of Business at New York University, and are experts in applied financial economics. Acharya and Richardson are the co-editors of Restoring Financial Stability and Regulating Wall Street. Van Nieuwerburgh is an expert on household finance and mortgage markets. White has studied government-sponsored enterprises for many years and has served on the board of Freddie Mac from 1986 to 1989 as part of his government service as a board member on the Federal Home Loan Bank Board.

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