Events are moving so quickly that this post is already two massive bailouts behind the times. However, the quasi-nationalization of Freddie and Fannie is such a significant event in the history of finance and government that it bares belated comment.
One of the (many) great tragedies of the Bush administration is that its reputation for untrustworthiness, incompetence, and blatant political hackery became so overpowering that people stopped listening. So on the rare occasions when the administration displayed the foresight so conspicuously lacking in Iraq and New Orleans, nobody listened.
The Bush administration repeatedly warned that Freddie Mac and Fannie May were dangers to the stability of the financial system. Congress, determined to show that the administration doesn’t have a monopoly on self righteous, arrogant bungling, and always mindful of the flow of campaign contributions, chose not to listen. The result is that taxpayers are on the hook for Freddie and Fannie’s losses.
Congress has (shamefully) shown itself to be not so very different from the administration. When it came to Freddie and Fannie, Congress chose to believe what was personally and politically convenient, regardless of the evidence. Faced with a crisis, Congress reached for the quick fix solution of having Freddie and Fannie expand their operations, without considering the risk. Ignoring outside advice they took their cue from lobbyists who wanted to use the housing crisis to help Freddie and Fannie escape the restrictions imposed as a result of their respective accounting scandals.
Finally, Congress appears to be dead set on learning nothing from the experience. The political groundwork is already being laid for the resurrection of Fannie and Freddie. No doubt bigger, more political and even less transparent than before.
Perhaps the most depressing aspect of this whole sad saga is that it really deosn’t seem to matter much who controls Congress. Between 2002 and 2006 the Bush administration and the Republican Congress put on a master class in bad government. Sadly, it appears from their recent performance that congressional Democrats were taking notes.