Alan Greenspan, then chairman of the Federal Reserve, at a hearing of the Senate Banking Committee almost five years ago:

The government-sponsored enterprises’ special advantage arises because, despite the explicit statement on the prospectus to GSE debentures that they are not backed by the full faith and credit of the U.S. government, most investors have apparently concluded that during a crisis the federal government will prevent the GSEs from defaulting on their debt.


Importantly, the scale itself has reinforced investors’ perceptions that, in the event of a crisis involving Fannie and Freddie, policymakers would have little alternative than to have the taxpayers explicitly stand behind the GSE debt.


It’s basically creating an abnormality, which the system cannot close around, and the potential of that is a systemic risk in — sometime in the future, if they continue to increase at the rate at which they are.”