As targets, Fannie and Freddie are almost too easy

Fannie and Freddie were under political pressure to underwrite loans to poor and minority borrowers. They were eager to do any business that appeared profitable. But investors knew what was going on. Investors’ biggest concern, as the duo’s losses mounted, was their political status. And right up to the moment it seized them, the Bush administration was insisting both were solvent and well capitalized.

Fannie and Freddie “held loans squarely within the public definition of subprime” that they didn’t call “subprime,” in the SEC’s language. True, but both also published detailed tables showing investors a more realistic picture of their huge holdings of nonconventional mortgages made to people with low credit scores, low down payments or both. It was in a public forum, after all, that Barney Frank called on them to “roll the dice . . . towards subsidized housing.” To add to the pathos, the two former CEOs named in the SEC complaints, Fannie’s Dan Mudd and Freddie’s Richard Syron, were brought aboard after accounting scandals and sought to appease Congress by upping loans to less-capable borrowers.

Yes, we had a housing bubble. Yes, we had deterioration in lending standards. Fannie and Freddie had a role in both. And bordering on lunatic is the claim that Fannie and Freddie came late to subprime so are innocent of the consequences. Even if the premise were true, by definition the last money in, not the first money in, defines a bubble. …

So where ultimately do Fannie and Freddie rank amid the confluence of ridiculous subsidies, private-sector opportunism and ungovernable global capital flows that contributed to the crisis? Who knows exactly, but the exaggerated ferocity of the debate lately is a reliable Washington hallmark of an argument fading into irrelevancy. The financial crisis isn’t over, and around the world the problem is not housing but governments whose commitments far exceed their resources.