The Perverse Nature of Fannie Mae and Freddie Mac

Paul Gigot in the Wall Street Journal has an interesting expose of the politics behind Fannie Mae and Freddie Mac:

I recount all this now because it illustrates the perverse nature of Fannie and Freddie that has made them such a relentless and untouchable political force. Their unique clout derives from a combination of liberal ideology and private profit. Fannie has been able to purchase political immunity for decades by disguising its vast profit-making machine in the cloak of "affordable housing." To be more precise, Fan and Fred have been protected by an alliance of Capitol Hill and Wall Street, of Barney Frank and Angelo Mozilo.
I know this because for more than six years I've been one of their antagonists. Any editor worth his expense account makes enemies, and complaints from CEOs, politicians and World Bank presidents are common. But Fannie Mae and Freddie Mac are unique in their thuggery, and their response to critics may help readers appreciate why taxpayers are now explicitly on the hook to rescue companies that some of us have spent years warning about.

The thuggery that Gigot refers to is the same leftist thuggery that Fannie Mae executives Franklin Raines and Jamie Gorelick learned from their time in the Clinton administration. The sheer savagery and contempt for law that many in the Clinton administration displayed was appalling. Remember the attacks on Kenneth Starr and Linda Tripp? Remember all the people who were audited by the IRS? Remember the people who were thrown in jail for yelling "you suck" to Clinton? Remember Billy Dale who was falsely prosecuted because Hillary wanted an excuse to clean house in the white house travel office?

Fan and Fred also couldn't prosper for as long as they have without the support of the political left, both in Congress and the intellectual class. This includes Mr. Frank and Sen. Chuck Schumer (D., N.Y.) on Capitol Hill, as well as Mr. Krugman and the Washington Post's Steven Pearlstein in the press. Their claim is that the companies are essential for homeownership.
Yet as studies have shown, about half of the implicit taxpayer subsidy for Fan and Fred is pocketed by shareholders and management. According to the Federal Reserve, the half that goes to homeowners adds up to a mere seven basis points on mortgages. In return for this, Fannie was able to pay no fewer than 21 of its executives more than $1 million in 2002, and in 2003 Mr. Raines pocketed more than $20 million. Fannie's left-wing defenders are underwriters of crony capitalism, not affordable housing.
So here we are this week, with the House and Senate preparing to commit taxpayer money to save Fannie and Freddie. The implicit taxpayer guarantee that Messrs. Gray and Raines and so many others said didn't exist has become explicit. Taxpayers may end up having to inject capital into the companies, in addition to guaranteeing their debt.
The abiding lesson here is what happens when you combine private profit with government power. You create political monsters that are protected both by journalists on the left and pseudo-capitalists on Wall Street, by liberal Democrats and country-club Republicans. Even now, after all of their dishonesty and failure, Fannie and Freddie could emerge from this taxpayer rescue more powerful than ever. Campaigning to spare taxpayers from that result would represent genuine "change," not that either presidential candidate seems interested.

While we're paying the increased taxes for years to come on this ridiculous bailout, remember Franklin Raines earning $90 million and Jamie Gorelick earning $26 million. I can just picture those jackasses chuckling to themselves while they are thinking "those poor taxpayers are suckers!"