Let me throw out for debate two steps the federal government might take to resolve the ambiguity that I see as a fundamental risk to the continuing stability of our financial system. First, various aspects of federal sponsorship that the market reads as providing an implied guarantee of GSE debt should be withdrawn...Eliminating the Treasury's authority to lend to the GSEs would provide a signal that the government is serious when it says that there is no government guarantee of GSE debt.  Second, over a transitional period of several years, the GSEs should add to the amount of capital they hold.

In my judgment, the only way for financial institutions to insure stability in the event of nonquantifiable shocks is for them to maintain a substantial extra capital cushion above that deemed necessary by analysis of quantifiable risks.

Should either [Freddie or Fannie] be rocked by a mistake or by an unforecastable shock, in the absence of robust contingency arrangements the result could be a crisis in U.S. financial markets that would inflict considerable damage