Gingerly, Senators Bob Corker, Republican of Tennessee, and Mark R. Warner, Democrat of Virginia, have been working up a bill. Yet it’s striking how much the process is being dominated by emotional battles and financial interests.
In the right corner — politically as well as figuratively — we have the contingent that despises Fannie Mae and Freddie Mac. These people continue, against the evidence, to consider them the central cause of the financial crisis. Their preferred solution is to wipe these companies from the earth and somehow get the government out of housing. The hope is that a thousand flowers will bloom on their graves, as private investors rush in to finance mortgages.
In the left corner — politically speaking, we are talking left of center — is a group of financiers that favors a plan to bring back Fannie and Freddie. The argument, forwarded by the banker James E. Millstein, who served as the chief restructuring officer in President Obama’s Treasury Department, is that they can be fixed.
Investors like the hedge fund manager John Paulson and Bruce Berkowitz of Fairholme Capital Management have embraced this idea, contending that Fannie and Freddie can pay back taxpayers, be recapitalized and live again. Not incidentally, they could profit handsomely if this works, as they have bought up positions in Fannie and Freddie. It’s a time-honored strategy: make one Wall Street investment and then make a second investment in some Washington lobbying to protect the first.
