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Don't Blame Fannie for Mess

Wall Street, banks, and government also at fault

By Victoria Floethe, Newser User

Posted Jan 5, 2009 9:11 AM CST

(Newser) – Fannie Mae and Freddie Mac, the "toxic twin" housing financing behemoths blamed for setting the world on fire, were not operating any differently than the entire financial sector, Bethany McLean writes in Vanity Fair. McLean documents Fannie Mae's history starting from conception in FDR's New Deal, when it was chartered by Congress to help homeownership (Freddie Mac followed in 1970), and ending in its failure to resist the profitable subprime game.

Evidence suggests that Fannie and Freddie were rashly seized, not because they had to be, but because they had many enemies in government, McLean argues. The seizure then scared a wave of companies into protecting themselves, deepening the crisis. McLean concludes that the government takeover has failed. "Fannie’s and Freddie’s cost of funds has shot higher, making it economically unfeasible for them to buy up a slew of mortgages," she writes.

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The Fannie Mae headquarters in Washington, DC. (Getty Images)

James A Johnson built Fannie into what former congressman Jim Leach, a longtime Fannie gadfly, calls "the greatest, most sophisticated lobbying operation in the modern history of finance." (AP Photo/Doug Mills)

Barney Frank, D-Mass, received $30,500 in campaign contributions from political action committees affiliated with mortgage giants Freddie Mac and Fannie Mae. (AP Photo/J. Scott Applewhite, File)

Former Fannie Mae Chief Executive Officer Franklin Raines testifies on Capitol Hill in Washington, before the House Oversight and Government Reform Committee hearing on the financial meltdown. (AP Photo/Susan Walsh)

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My view is [the Bush] administration said we’ve got four months to remove this thorn in our side. There will never be another time. We’ve got to do it now. - Tim Howard, Fannie’s chief financial officer from 1990 to 2004.

They weren't like other public company because they had perks from their congressional charter: an exemption from state and local income taxes, presidential appointees on their boards of directors, and a line of credit with the U.S. Treasury. - Bethany McClean, Vanity Fair

One fact of the GSE world is that you will be slaughtered either for being a sheep or a wolf, and I’d much rather meet my fate as a predator than as a lamb chop provider. - Bill Maloni, former chief lobyist for Fannie Mae

They ran a battle plan that would make Patton proud. It was 24-7 and never anything left to chance.
- Richard Baker, former congressman and Fannie antagonist

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Don't Blame Fannie for Mess