Do Fannie and Freddie Need a 'Bad Bank?'

As the Administration weighs options for reorganizing Fannie Mae (FNM) and Freddie Mac (FRE) in the wake of their dismal financial performance, a strategy that spawned a lot of chatter but little action earlier in the financial crisis may be back on the table. Months ago, policymakers and outside experts weighed the benefits of creating a "bad bank" to hold commercial banks' toxic assets, but the idea never gained traction. Now, some suggest, the concept could help to restructure the mortgage giants—but the hurdles that caused commercial banks to adopt a different solution remain.

To continue reading this article you must be a Bloomberg Professional Service Subscriber.