Nine years after the crisis, Fannie and Freddie remain unfixed

This month marks the ninth anniversary of the start of the Great Recession. And today, the U.S. economy still remains susceptible to a pair of major drivers behind that crisis: Fannie Mae and Freddie Mac.

As the crisis exhibited all too clearly, the government-sponsored enterprise duopoly system creates systemic risk for everyone, most notably to taxpayers, who have paid out trillions in bailouts. Congress must act to reform these two giant government-sponsored enterprises in order to prevent future taxpayer-funded bailouts and protect the savings of American families.

Fannie and Freddie do not make loans. Rather, they buy mortgages from banks. The transaction flushes capital back into the banks, allowing them to originate more mortgages.

While this does provide liquidity to the financial services industry, the risk of default shifts to the GSEs, which is essentially backstopped by the taxpayer.

Up until 2008, both Fannie and Freddie enjoyed an implicit backing by the federal government (i.e. the taxpayer) as they bought up shaky primary mortgages. And cheap capital caused by loose monetary policy led to the vast purchases of mortgages. Between 1990 to 2003, the holdings of Fannie and Freddie went from 5 percent of the nation's mortgages to over 20 percent. By 2007, they held over $5 trillion in mortgages, about the size of the entire public debt of the U.S. government at the time.