kf stops the bleeding!

A mostly political Weblog.
Oct. 5 2008 7:10 AM

Kf Stops the Bleeding!

Plus: No time for Dems to unpanic.

(Continued from Page 80)

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.

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You could say that--unless you read the remainder of Krugman's column, which notes the inadequate capital requirements imposed on Fannie-Freddie because 

the companies' management bought off the political process, systematically hiring influential figures from both parties.

P.P.P.S.: Is this risk of corruption any less with a) "purely public enterprise" than with b) a public-private hybrid like Fannie Mae or c) a purely private enterprise (like, say, the Blackstone Group)? Interesting question. I would think well-connected liberal operatives like Johnson would be capable of at least perverting a regulatory regime even if they headed a 100% federal, civil-servicized Fannie Mae. (Most "regulation" is in category (c) of course, where the risk of corruption seems somehow undiminished by the triumphant "Fannie-Freddie experience.") ...

Update: See semi-clarifying semi-correction. ...  2:00 P.M.

___________________________

Didn't subprime poster villain Angelo Mozilo do Barack Obama a big favor by compromising Obama's initial VP vetter, Jim Johnson, with favorable loans, causing Johnson to step down from his position? How bad would today's headlines be for Obama if Fannie Mae fatcat Johnson was still heading up his vice-presidential search effort? ... 10:45 P.M.

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