agencies, more so than it was before the financial
crisis. The former governor of the Bank of England,
Mervyn King, told me this: “Most countries have socialized health care and a free market for mortgages.
You in the United States do exactly the opposite.”
It’s a strange state of affairs, but I’ve come to be-
lieve that in the world of Fannie and Freddie, strange
is actually normal. Start with the fact that although
these two companies touch the lives of almost every
American who has a mortgage and even many who
rent—they determine who gets mortgage credit
and at what price, especially today—very few people
understand what they do. They are part of the hidden
machinery of the world that makes our lives, in this
case our financial lives, possible, but which we never
think about or won’t until there’s a problem. Another
oddity about these companies is that while homes are
the most domestic asset possible, Fannie and Freddie
are global; through their securities, foreign investors,
including China’s central bank, finance the purchase of
Americans’ homes. This seems like a good thing—it’s
globalization at work!—but, as the story of Fannie
and Freddie shows, it has also tied the hands of the
government at critical times.
The story really is a saga, with all sorts of unex-
pected twists and turns, and conspiracy theories galore.
“You can’t make this stuff up,” a longtime lobbyist once
told me. “The GSE world is a cross between Monty Python and Shakespeare.” Right now, a group of investors
is suing the U.S. government over how it has handled
Fannie and Freddie, and while you might think that the
investors, which are mostly powerful hedge funds, are
only looking after their own dollar—and they are—I’ve
also come to believe that they’re looking after the rest
of us by providing a check on the government’s behavior that otherwise wouldn’t exist.
I first started writing about the GSEs in 2004,
when Fannie had an accounting scandal. Even though
I’d been covering business for almost a decade at that
point, I still couldn’t believe that anything like Fannie
and Freddie existed. They were (and are) unimag-inably gigantic companies that were like mythical
beasts—part government agencies and part normal
companies, with shareholders and boards of directors.
There was always an argument that this sort of pub-
lic-private partnership, which harnessed the power of
the government to the discipline of the market, was
the best of all possible worlds. But at the time I wrote
about Fannie, I was convinced that it was a bad actor.
When Fannie executives argued that their enemies
just wanted to turn their business over to the big
banks, along with their profits, I thought that was just
a conspiracy theory. And even if I had believed it, I
would have thought, “Well, what’s wrong with that?”
I too was a believer in what Franklin Raines, Fannie’s
former CEO, calls “marketification,” the idea that the
free market fixes all.
That was long before the financial crisis, about
which even Alan Greenspan, that ardent believer in
Ayn Rand’s libertarianism, said in 2008, “Those of us
who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included,
are in a state of shocked disbelief.” There were lots
of villains in the run-up to the financial crisis, which is
why Joe Nocera and I titled our 2010 book All the
Devils Are Here. And while Fannie and Freddie were
two of the villains, by no means were they the only
ones. I would have liked to have blamed the financial
crisis on them—there would be much more clarity
that way, and we’d be able to keep the religion that is
marketification alive—but I have never been able to
make the facts line up with that narrative. But the
strength of it has helped create the current paralysis
in Washington. We can’t seem to live without Fannie
and Freddie, but if they were solely responsible for
a horrible financial crisis, how can we live with them,
Have any of you ever worked for Fannie or Freddie, or dealt with them as insiders, partners, competitors, or customers? I would love to hear your
thoughts in the comments section. Despite all the
time I’ve put into this topic, I still have more to learn,
and my views are always evolving.
Bethany McLean is a contributing editor at Vanity Fair.
She is also a columnist at Reuters, a contributor to
CNBC, and the author of two books, The Smartest Guys
in the Room: The Amazing Rise and Scandalous Fall of
Enron and All the Devils Are Here: The Hidden History of
the Financial Crisis. She lives in Chicago.
Shaky Ground by Bethany McLean can be purchased at