Explain why you agree or disagree with the following statement: "The debt of government-owned corporations is guaranteed by the full faith and credit of the U.S. government,

Question

but that is not the case for the debt of government-sponsored enterprises."

Answer 1

One would not agree with this statement because both government-owned corporations and also government-sponsored enterprises are not backed by the full faith and credit of the U.S. government.

A government-owned corporation (GOC) is one of several types of government-chartered entities. Two examples of a government-owned corporation are the Tennessee Valley Authority (TVA) and the U.S. Postal Service. However, the only government-owned corporation that is a frequent issuer of debt in the market is the TVA. TVA debt obligations are not guaranteed by the U.S. government. However, the securities are rated triple A by Moody's and Standard and Poor's. The rating is based on the TVA's status as a wholly owned corporate agency of the U.S. government and the view of the rating agencies of the TVA's financial strengths.

Another type of government-chartered entity is a government-sponsored enterprise (GSE). Like GOCs, GSEs are not backed by the U.S. government. GSEs are divided into two types. The first is a publicly owned shareholder corporation. There are three such GSEs: the Federal National Mortgage Association ("Fannie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac"), and the Federal Agricultural Mortgage Corporation ("Farmer Mac"). The other type of GSE is a funding entity of a federally chartered bank lending system. These GSEs include the Federal Home Loan Banks and the Federal Farm Credit Banks.