2008-08-05wsj.com

This is quite the piece of work. Basically: (1) Congress is wise for every single aspect of "shoring up" the GSEs, which it apparently did not as an "emergency measure", but due to well-thought out reasoning; (2) Raines isn't responsible for the accounting fraud that occurred on his watch, (3) the problem with Fannie and Freddie's stock is that they've been "talked down" by the companies' ideological enemies, (4) subprime is the true and only "toxic waste" and it was only private sector, therefore the GSEs are clean, and (5) the new powers given to back the GSEs haven't "been used" therefore there has been no cost to shoring them up.

At this point we'd like to remind readers that the following are, unlike Raines' opinions, incontrovertible facts:

  1. The goal of Fannie and Freddie are manipulation of interest rates (price fixing) targetted at the middle class, not people actually in need of housing welfare. The purpose is to buy votes.
  2. Fannie and Freddie even fail at this goal, since prices go up in reaction to low interest rates, and affordability goes back down to where it started.
  3. Ken Lay was sentenced to prison for a similar role at Enron to the one Raines had at the GSEs.
  4. Fannie and Freddie corruptly curried political patronage; for example Fannie was caught shaking down grantees for influential contacts at the Fannie Mae Foundation, so it was quietly shut down last year. Those leads, apparently, have now come in handy.
  5. This government has never raised the debt limit and not quickly used the additional "leeway".

The only possible justification for what has been done is to avert the turmoil of losing the GSEs if (when) they collapse. But the first step of getting an addict off a drug is... taking the drug away.


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