In a New York Times Article Paul Krugman took exception to another who laid blame for the financial crisis on Fannie Mae. In Contending with Paul Krugman, part II, Charles Lane takes exception to Krugman. An excerpt:

What is the point of trying to absolve Fan-Fred in the first place? To the extent that Krugman is merely trying to show that the real culprits are to be found elsewhere — on Wall Street — then I suppose this is a worthy exercise in some academic sense. But apportioning blame for the Great Panic of 2008 is a bit like trying to figure out “the” cause of World War I. If ever there was an overdetermined historical event, this was it. There’s more than enough blame to go around; everyone should be held accountable.

I can understand why a liberal would want the government to support housing opportunity for low-income people. But I cannot understand why a conscientious liberal would support Fan-Fred. What is “progressive” about a couple of megacorporations populated by highly-paid executives who enriched their shareholders and themselves by exploiting a boatload of special government breaks — from an implicit federal debt guarantee to exemption from state and local taxation? When anyone proposed tighter regulation, such as raising their capital requirements, limiting their product line or anything else, pretty much, Fannie and Freddie mobilized an immense and widely feared Washington lobbying operation, greased with campaign cash.

No, Fannie and Freddie, or their congressional enablers, did not “cause” our current predicament. But they were definitely part of the problem. Over many years, they directly and indirectly encouraged over-investment in single-family housing; and their activities during the bubble contributed to making the bust, when it came, both bigger and more costly to taxpayers than it might have otherwise been.

Fannie Mae alone was not responsible, but it is equally dangerous to absolve its roll. The more we seek demons and partisan blame the more we miss the systemic causes that need correction, and the more we risk a repeat shortly down the road.

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