(2009-11-15) Stiglitz Orszag Fannie Mae Risk2002 Paper

Joseph Stiglitz, Jonathan Orszag, and Peter Orszag were hired by FannieMae to write a paper in 2002 defending the claim that the odds of FannieMae ever getting into financial trouble were extremely low. Their econometric analysis found that the probability of the stress test scenario is conservatively one in 500,000 and may be smaller than one in three million. As a result, they find that the risk of a default by these companies, if they hold sufficient capital to meet the stress test, is "effectively zero."