Huh? Does Krugman not know that Fannie Mae was a huge buyer of subprime mortgages, including mortgages from Angelo Mozilo's Countrywide? David Smith's eerily prescient AHI blog noted that Fannie Mae and Freddie Mac reportedly bought $35 billion in subprimes in the first quarter of 2007 alone.
On his blog, Krugman casts the Fannie problem in ideological terms:
What you need to know here is that the right — the WSJ editorial page, Heritage, etc. — hates, hates, hates Fannie and Freddie. Why? Because they don't want quasi-public entities competing with Angelo Mozilo.
"Huh?" again. Conn Carroll responds:
The problem is that Fannie was Countrywide's No. 1 enabler. ... When he was CEO of Fannie, former Barack Obama campaign adviser Jim Johnson worked personally with Mozilo to streamline the two companies' business relationship.
Could Mozilo have done his subprime thing without Johnson and Fannie Mae as a backup to purchase his junky mortgages?
P.S.: Krugman suggests Fannie's problem is that it wasn't a true government agency, but rather a hybrid public/private partnership that privatized profits and socialized losses.
Liberals like Fannie the way it was for the first 30 years — a purely public enterprise.
Good point--according to Smith Fannie seems to have been using all sorts of tricks to turn profits using its implicit government credit guarantee.But if Fannie had been a pure government enterprise, would it really have refrained from supporting Mozilo-style subprime lending? I'm not so sure. Providing "affordable housing" was a policy crusade of Johnson, among others, and a popular goal on Capitol Hill (where Mozilo had done so much to ensure that his "friends" would be receptive to his particular method of pursuing affordability).
P.P.S.: Krugman also writes, boldly:
You could say that the Fannie-Freddie experience shows that regulation works.