Fannie Mae: Refreshingly Ideology Free!

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.

Ezra Klein on the problems with government-sponsored housing agencies:

Fannie Mae and Freddie Mac are what happens when ideological compromise goes horribly wrong. On the one hand, they’re supposed to make housing more affordable. On the other hand, they’re private companies, because you wouldn’t want some sclerotic government agency at the center of this. The result? Profit-maximizing corporations that enjoy the government’s backing.

This is hardly the most important thing in the world, but this is wrong in an interesting way. Fannie Mae and Freddie Mac were converted into semi-private organizations (GSEs, or government sponsored enterprises) by LBJ in 1968. But it wasn’t for ideological reasons. It was because Johnson was spending a lot of money on the Vietnam war, which was running up federal borrowing, so he wanted to get Fannie and Freddie’s debt off the government’s books. This would, technically, reduce federal debt issuance and make his Vietnam/Great Society deficits less alarming.

In other words, it was purely political and financial legerdemain, entirely ideology free. And ironically, it’s almost precisely analogous to what big banks did during the late housing bubble, taking huge amounts of debt nominally off their balance sheets while, in reality, remaining responsible for it. When the shit hit the fan, the bankers had to pay the bills, and as it turns out, so did Uncle Sam for its GSEs.

So what to do about Fannie and Freddie? The conventional wisdom is that the entire housing market would collapse without them, but I’m not so sure about that once we manage to extricate ourselves from our current troubles. As a further little bit of history trivia, FDR’s original plan for the FHA was that it would work with private organizations that would guarantee home loans. But after a couple of years it became clear that no private sector organizations were interested in taking on this job, so Fannie Mae was created to do it instead. Whether it’s still true that the private sector is uninterested in this business in an era (or so I’m told) of endless financial innovation, I’m not so sure about. And if it turns out that it is? Well, other countries managed to muddle along for years without equivalent agencies. We probably can too.

GREAT JOURNALISM, SLOW FUNDRAISING

Our team has been on fire lately—publishing sweeping, one-of-a-kind investigations, ambitious, groundbreaking projects, and even releasing “the holy shit documentary of the year.” And that’s on top of protecting free and fair elections and standing up to bullies and BS when others in the media don’t.

Yet, we just came up pretty short on our first big fundraising campaign since Mother Jones and the Center for Investigative Reporting joined forces.

So, two things:

1) If you value the journalism we do but haven’t pitched in over the last few months, please consider doing so now—we urgently need a lot of help to make up for lost ground.

2) If you’re not ready to donate but you’re interested enough in our work to be reading this, please consider signing up for our free Mother Jones Daily newsletter to get to know us and our reporting better. Maybe once you do, you’ll see it’s something worth supporting.

payment methods

GREAT JOURNALISM, SLOW FUNDRAISING

Our team has been on fire lately—publishing sweeping, one-of-a-kind investigations, ambitious, groundbreaking projects, and even releasing “the holy shit documentary of the year.” And that’s on top of protecting free and fair elections and standing up to bullies and BS when others in the media don’t.

Yet, we just came up pretty short on our first big fundraising campaign since Mother Jones and the Center for Investigative Reporting joined forces.

So, two things:

1) If you value the journalism we do but haven’t pitched in over the last few months, please consider doing so now—we urgently need a lot of help to make up for lost ground.

2) If you’re not ready to donate but you’re interested enough in our work to be reading this, please consider signing up for our free Mother Jones Daily newsletter to get to know us and our reporting better. Maybe once you do, you’ll see it’s something worth supporting.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate