The Wall Street Journal has an important rejoinder today to Democratic efforts to rewrite Fannie Mae’s role in the housing bubble and the recent economic panic.
The Journal’s Brian Carney (my brother) started this back and forth with an op-ed last week critiquing the financial reform bill for ignoring Fannie & Freddie, which didn’t fit neatly into the Democrats’ narrative of Wall Street greed, and which undermined the rationale behind the bill by showing how well-intentioned government officials can often make things worse.
Former Fannie exec Franklin Raines fired back a letter defending Fannie, and today’s WSJ editorial re-rebuts Raines. The editorial makes a couple great points, including this response to an absurd Raines claim:
Mr. Raines is signaling the coming political debate when he says “that Wall Street and the commercial banks have virtually abandoned the mortgage market.” But this is like murdering your parents and demanding clemency because you’re an orphan. No private bank can compete with the federal government’s borrowing costs, so no one can afford to compete with Fannie and Freddie. It was hard enough to compete when the two companies had to maintain a (subsidized) profit margin for their shareholders. Now that they’re being run at an intentional loss, it’s impossible.
But the editorial leaves out some very relevant background: Fannie wasn’t just propping up banks, realtors, and some lucky homeowners at the expense of today’s taxpayers — it was enriching well-connected Democrats.
Raines was paid obscenely by Fannie Mae, but the federal government later charged that $90 million of that pay was based on overstated earnings. In the end, Raines settled the civil suit by giving up a few million dollars and his worthless stock options. He made out like a bandit by running Fannie like Enron.
Jamie Gorelick was a top Clinton aide who was paid $26 million by Fannie Mae as she helped build the housing bubble.
There are plenty of others, but you get the idea: Fannie Mae was a slush-fund for the politically well-connected — mostly Democrats. Its money came from fraud, and from an implicit government guarantee, which is now an explicit subsidy. In other words, our ballooning debt today is financing Franklin Raines’ life as a millionaire.