A wink, gone in a blink

Implicit guarantees - such as the government’s backing of Fannie Mae and Freddie Mac, banks’ erstwhile support of the auction-rate securities market and asset managers’ standing behind their money market funds - work best in optimistic boom times. In tough times, their value can be less than the paper they aren’t written on. Some of these tacit “promises” may not be solid, but they are important. Fannie Mae’s business model is predicated on the fact that it can raise money far more cheaply, due ...