(Note: This is the first of a series that will look at the current state, the players involved, the options forward, and the politics surrounding the GSE debate)
Since the moment Fannie Mae and Freddie Mac were put into conservatorship, a debate has raged over their future. The debate is complex, highly charged and at times, frankly nasty.
Part of the reason for the tone of the debate is that various groups representing the interests of shareholders of the two companies have chosen to wage a bare-knuckles campaign to get the two companies re-privatized. If they were re-privatized the increase in value of these stocks, currently trading below $2 per share, could produce a massive profit to their investors. Thus, a hodge-podge of players acting on behalf of shareholders has put significant capital behind a coordinated effort to increase the odds of their re-privatization, including contributing to sympathetic non-profits and other stakeholders who could be persuaded to share their views, hiring PR firms to plant beneficial op-eds and other stories in the press, and creating organizations intended to give the impression of grass roots support.
At times they have taken to aggressive, ad hominem attacks on those who support GSE reform that they take to be a threat to their interests, suggesting that their positions are motivated by private gain not by public interest, apparently unaware of the irony. They have gone after current and past policymakers in Congress and the executive branch, stakeholders and policy experts, anyone who appears to pose a threat to their interests. While their arguments have yet to break through to a broad set of policymakers in any meaningful way, they have succeeded in infusing the discussion with a level of vitriol and mutual suspicion that has made an already immensely difficult policy challenge even more challenging.
While it is no doubt important for policymakers to decide how to handle the interests of the shareholders of these two institutions, it is critical that they are able to distinguish between that question and the question of what kind of housing finance system is in the best interest of the nation. And it is critical that they don’t reward the kind of campaign that is being waged on their behalf, one that threatens our very ability to deliberate about important issues in a way that has any hope of getting to the right outcome.
So, whether we wind up choosing a path in which Fannie and Freddie are ultimately re-privatized in one form or another, be it legislative or administrative, let us choose that path on the basis of what is best for the nation, not because a few hedge funds have mounted an ugly campaign to keep us from thinking clearly.