First, major crises usually involve financial institutions or markets that are either very large or play some critical role in the financial system. Second, the origins of most financial crises (excluding, perhaps, those attributable to natural disasters, war, and other nonfinancial events) can be traced to failures of due diligence or “market discipline” by an important group of market participants.
Both of these conditions apply to the current situation of Fannie Mae and Freddie Mac (Eisenbeis, Frame, and Wall, forthcoming). The two GSEs are certainly large, having a dominant presence in U.S. mortgage markets and a substantial role in other financial markets, particularly in public debt and derivatives markets.