Brooks on Fannie Mae

David Brooks has a column about Fannie Mae that is almost entirely accurate - except for one major distortion. Brooks talks about the problems of this particular public / private partnership. Fannie was a private lender with an implicit government guarantee and so was able to take big risks, make big profits, with the knowledge that they would be bailed out. And through lobbying and support from affordable housing-supportive congresspersons with pro-business congresspersons were able to prevent oversight and regulation.

All of this is true. But this following sentence is not true and I find it appalling:

Of course, it all came undone. Underneath, Fannie was a cancer that helped spread risky behavior and low standards across the housing industry. We all know what happened next.

Look, Fannie Mae's setup was very problematic (And if I remember right, George W. Bush wanted to increase oversight). They either need to be fully government-run or fully private with no government guarantee. There is an argument to be made that their role in providing liquidity to smaller banks is important for the housing market and can be done without making unsound loans.

But Fannie Mae did not spread risky behavior across the market. In fact, the evidence shows that Fannie Mae was late to the game when it came to risky loans. It had to play catch-up to the private groups like Goldman, et al. It frustrates me that this myth among conservatives, even moderates like Brooks, spreads without any evidence to back it up. The evidence is clear that the bulk of the risky behavior was in the private sector and started in the private sector.