In several past postings reviewing the recent financial meltdown, I have noted the pivotal role played by Fannie Mae.

A toxic mix of arrogance and incompetence infected Wall Street.  Bad political, monetary, and tax policy inflated the housing market bubble.  But without the assurances of Fannie Mae, the ratings agencies and market makers would not have  been able to give the mortgage backed securities at the center of the crisis the ratings they clearly did not deserve.

Fannie Mae was exempt from regulation by the FDIC, the SEC and SIPC.  It’ s sole overseer was Congress.  When Congress was presented with evidence that Fannie Mae was taking excessive risks and needed restraint in 2005 and 2006, the bearers of caution were beat down by Barney Frank and many others  and the proposal was unable to even make it out of committee. On almost straight party lines the Democrats refused to restrain the agency. Fannie Mae, with a monopoly granted by the government lobbied hard to prevent any interference by the Congress.

The largest recipients of Fannie Mae campaign funds was Hillary Clinton, Christopher Dodd (Senate Banking Committee Chairman) and Barak Obama.

While understandable outrage was leveled at the Wall Street Firms and AIG for the bailouts the real outrage was the bailout of Fannie Mae.  Now President Obama has pledged unlimited support for the agency.

When private enterprise fails capital exits the enterprise; when a government enterprise fails it attracts additional capital.  Private mistakes go bankrupt, government mistakes get institutionalized.