Government-Sponsored Enterprises are Too Big to Fail: Balancing Public and Private Interests

Authors

Carrie Stradley Lavargna

Abstract

Government-sponsored enterprises have issued over one trillion dollars of debt as of 1991. Several of these enterprises, including the Federal National Mortgage Association (Fannie Mae), are among the largest financial institutions in the United States and are "too big to fail." The public's misunderstanding about the government's role in the enterprises magnifies the potential cost of insolvency. The relationship between the enterprises' private owners and the public sector is unclear and has lead to further uncertainty regarding the government's role in supervising, controlling, and managing these quasi-governmental corporations.

In her article, Professor Lavargna argues that we should learn our lesson from the costly bank and thrift crisis and reject the present government supremacy standard and the appointment of a conservator for failing enterprises. A bankruptcy proceeding would instead provide the appropriate forum to balance the enterprise's strong ties to the government with their responsibility to shareholders, borrowers, and creditors, and to consider all interests involved.

Recommended Citation

Carrie Stradley Lavargna, Government-Sponsored Enterprises are Too Big to Fail: Balancing Public and Private Interests, 44 Hastings L.J. 991 (1993).
Available at: https://repository.uclawsf.edu/hastings_law_journal/vol44/iss5/2