Are Fannie and Freddie Screwed? Bush Hopes So

By Scott Thill, AlterNet. Posted July 21, 2008.

President Bush made it his sub rosa mission to end the hegemony of these two Democrats-in-waiting companies. I don't even think he understood what the guarantee was or what they were supposed to do. -- Jim Cramer, "An Elegy for Fannie and Freddie"

In January, I wrote a cultural analysis of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, more casually known as Fannie Mae and Freddie Mac, and how the Bush administration might be trying to take them down. Ex-CEO Franklin Delano Raines was in court and accusing Bush of what the Washington Post described as "a coordinated plan within the Bush administration to depress Fannie Mae's stock price," which would have gotten more play in the press were it not for the fact that Raines was accused by Fannie Mae's overseer, the Office of Federal Housing Enterprise Oversight (OFHEO), of skimming millions off the top for himself. The soap opera thickened under the weight of the fact that OFHEO director James B. Lockhart was not only a Bush contributor but a loyalist who went to school with him at Yale. And while the two parties, and their political parties, waged war with each other over control of two government-sponsored entities, the housing meltdown caught serious fire.

It has since cratered.

But my piece fell on deaf ears, except for those belonging to motivated professional and armchair economists who love to explore the nether regions of history, finance and hyperreality. Because hyperreality is exactly what the rampant securitization of the debt and housing markets has wrought since George W. Bush took office and, paraphrasing popular stock blowhard Jim Cramer, set about destroying the decades-old lender for good, plunging yet another knife into the back of not Franklin Delano Raines, but Franklin Delano Roosevelt, and his New Deal.

So here we are, months later, and the shit has hit the fan. The world, it seems, has awoken to the fact that Fannie and Freddie own trillions in worthless debt, which will need to be owned, which is to say bought, by the government rather than the shareholders who ditched them. And although CNN fool Glenn Beck may still want to attack FDR for nationalizing finance, it is neither his nor the American people's fault that the banks pimped corrupt schemes like CDOs and SIVs. It is those banks, and their accessories in the real estate and finance markets, that logged trillions in inflated debt without checking to see if the money was going to ever really come in.

After all, as I argued in the earlier piece, FDR defeated Hitler, Mussolini and the Great Depression by pulling the nation together, rather than tearing it apart. That latter fuck-up has been left to the Bush administration's economic and geopolitical gamesmanship.

If you're going to know anything about Fannie and Freddie, know this: They used to be government agencies and were created to help responsible Americans get loans for houses. In 1968, they were privatized and therefore deregulated, which is to say, profitable for the few and corrupt for the many. As Paul Krugman puts it in the otherwise weak analysis "Fannie, Freddie and the Threat of Economic Meltdown," "Profits are privatized but losses are socialized."

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Scott Thill runs the online mag Morphizm.com. His writing has appeared on Salon, XLR8R, All Music Guide, Wired and others.