Sallie Mae's commercial paper is NOT backed by the full faith and credit of the US government. They carry a specific disclaimer to that effect. It is true that many personal student loans (GSLs) from banks are guaranteed by the government. The system was recently reformed to remove the riskless subsidy to Sallie Mae, which is 100% privately owned, and very profitable. Similarly Fannie Mae and all other priavetly held GSE's are only backed by an "implicit" federal guarantee. Although the only time one of these got into trouble the feds did bail it out. See my forthcoming article "Reinventing Government Corporations" in the Illinois Law Review. Due out in about three months. OBCrypto: How big a risk premium would YOU want to lend to an anonymous borrower? In practice, for the forseeable future any such lending will almost certainly be intermediated through a very small number (near zero) of specialists ready, willing and able to measure and minimize the risks. Or there will be ferocious requirements for collateral. A.Michael Froomkin | +1 (305) 284-4285; +1 (305) 284-6506 (fax) U.Miami Law School | MFROOMKI@UMIAMI.IR.MIAMI.EDU PO Box 248087 | Coral Gables, FL 33146 USA | It's warmish here. On Mon, 23 Jan 1995, Rick Busdiecker wrote: [...]
Student Loans (at least GSLs) and GNMA loans are backed by ``the full faith and credit'' of the US federal government. As far as an investor is concerned, loan default looks the same as if the loanee paid their debt off early. The `web of debt' suggestion posted here doesn't seem to follow the same model unless you count virtually every form of financial transaction -- including buying a cup of coffe with a dollar bill -- as fitting the model.
As a side note, GNMA (Ginnie Mae) is not for `general loans', but rather VA and FHA primary residence mortgages with various restrictions. GNMA, FNMA (Fannie Mae), and FHLMC (Freddie Mac) all exist to provide secondary markets for various kinds of real estate debt. [...]