Don't Bury Fannie Yet; We May Need It

John McCarron, a former colleague from my days at the Chicago Tribune, weighs in today with the first defense of Fannie Mae that I've seen in print (other than former CEO Franklin Raines' op-ed in the Washington Post). John spent many years covering non-profit development groups, which used the Community Reinvestment Act and loans and grants offered by Fannie Mae to pressure banks to help rebuild urban neighborhoods devastated by disinvestment, so he knows a bit about this subject.

Here's his conclusion:

Yet what's ailing Fannie now—the fall of its stock price amid fear of insolvency— isn't so much her dalliance with subprime as the general retreat of home prices. Even holders of fixed-rate 30s are tempted to walk away when what they owe is far greater than what they own.

But whose fault is housing's burst bubble? Is it Alan "Easy Money" Greenspan's? The loan sharks pushing subprimes? The go-go Wall Street investment houses and their go-along rating agencies?

There's plenty to go around. Point is, don't believe those who want to deflect public anger onto Fannie Mae. It has earned the financial guarantee that a Democratic Congress has given it. Chances are that guarantee won't be needed. More likely Fannie soon will be called upon, as it was in '38, to pull the housing market out of the ditch and help rescue capitalism from its own excess.