Some great examples of the federal government's involvement in the
political economy.

http://en.wikipedia.org/wiki/Freddie_mac

The Federal Home Loan Mortgage Corporation (FHLMC), known as Freddie
Mac (OTCBB: FMCC), is a public government sponsored enterprise (GSE),
headquartered in the Tyson's Corner CDP in unincorporated Fairfax
County, Virginia.[3][4]

The FHLMC was created in 1970 to expand the secondary market for
mortgages in the US. Along with other GSEs, Freddie Mac buys mortgages
on the secondary market, pools them, and sells them as a
mortgage-backed security to investors on the open market. This
secondary mortgage market increases the supply of money available for
mortgage lending and increases the money available for new home
purchases. The name, "Freddie Mac", is an acronym of the company's
full name that had been adopted officially for ease of identification
(see "GSEs" below for other examples).

From 1938 to 1968, the Federal National Mortgage Association (Fannie
Mae) was the sole institution that bought mortgages from depository
institutions, principally savings and loan associations, which
encouraged more mortgage lending and effectively insured the value of
mortgages by the US government. In 1968, Fannie Mae split into a
private corporation and a publicly financed institution. The private
corporation was still called Fannie Mae and its charter continued to
support the purchase of mortgages from savings and loan associations
and other depository institutions, but without an explicit insurance
policy that guaranteed the value of the mortgages. The publicly
financed institution was named the Government National Mortgage
Association (Ginnie Mae) and it explicitly guaranteed the repayments
of securities backed by mortgages made to government employees or
veterans (the mortgages themselves were also guaranteed by other
government organizations). To provide competition for the newly
private Fannie Mae and to further increase the availability of funds
to finance mortgages and home ownership, Congress then established the
Federal Home Loan Mortgage Corporation (Freddie Mac) as a private
corporation through the Emergency Home Finance Act of 1970. The
charter of Freddie Mac was essentially the same as Fannie Mae's newly
private charter: to expand the secondary market for mortgages and
mortgage backed securities by buying mortgages made by savings and
loan associations and other depository institutions.

The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") revised and standardized the regulation of both Fannie
Mae and Freddie Mac. Prior to this act, Freddie Mac was owned by the
Federal Home Loan Bank System and governed by the Federal Home Loan
Bank Board, which was reorganized into the Office of Thrift
Supervision by the Act. The Act severed Freddie Mac's ties to the
Federal Home Loan Bank System, created an 18-member board of
directors, and subjected it to oversight by the U.S. Department of
Housing and Urban Development (HUD).

In 1995, Freddie Mac began receiving affordable housing credit for
buying subprime securities, and by 2004, HUD suggested the company was
lagging behind and should "do more."[12]

Freddie Mac was put under a conservatorship of the U.S. Federal
government on Sunday, September 7, 2008.

http://en.wikipedia.org/wiki/Fannie_Mae

The Federal National Mortgage Association (FNMA; OTCBB: FNMA),
commonly known as Fannie Mae, was founded in 1938 during the Great
Depression as part of the New Deal. It is a government-sponsored
enterprise (GSE), though it has been a publicly traded company since
1968.[2] The corporation's purpose is to expand the secondary mortgage
market by securitizing mortgages in the form of mortgage-backed
securities (MBS),[3] allowing lenders to reinvest their assets into
more lending and in effect increasing the number of lenders in the
mortgage market by reducing the reliance on thrifts.[4]

History

The Federal National Mortgage Association (FNMA), colloquially known
as Fannie Mae, was established in 1938 by amendments to the National
Housing Act[5] after the Great Depression as part of Franklin Delano
Roosevelt's New Deal. Fannie Mae was established to provide local
banks with federal money to finance home mortgages in an attempt to
raise levels of home ownership and the availability of affordable
housing.[6] Fannie Mae created a liquid secondary mortgage market and
thereby made it possible for banks and other loan originators to issue
more housing loans, primarily by buying Federal Housing Administration
(FHA) insured mortgages.[7] For the first thirty years following its
inception, Fannie Mae held a monopoly over the secondary mortgage
market.[8]

It was acquired by the Housing and Home Finance Agency from the
Federal Loan Agency as a constituent unit in 1950.[9] In 1954, an
amendment known as the Federal National Mortgage Association Charter
Act[10] made Fannie Mae into "mixed-ownership corporation" meaning
that federal government held the preferred stock while private
investors held the common stock;[5] in 1968 it converted to a
privately held corporation, to remove its activity and debt from the
federal budget.[11] In the 1968 change, arising from the Housing and
Urban Development Act of 1968, Fannie Mae's predecessor (also called
Fannie Mae) was split into the current Fannie Mae and the Government
National Mortgage Association ("Ginnie Mae").

Ginnie Mae, which remained a government organization, supports
FHA-insured mortgages as well as Veterans Administration (VA) and
Farmers Home Administration (FmHA) insured mortgages. As such Ginnie
Mae is the only home-loan agency explicitly backed by the full faith
and credit of the United States government.[12]

In 1970, the federal government authorized Fannie Mae to purchase
private mortgages, i.e. those not insured by the FHA, VA, or FmHA, and
created the Federal Home Loan Mortgage Corporation (FHLMC),
colloquially known as Freddie Mac, to compete with Fannie Mae and thus
facilitate a more robust and efficient secondary mortgage market.[12]

In 1981, Fannie Mae issued its first mortgage passthrough and called
it a mortgage-backed security. The Fannie Mae laws did not require the
Banks to hand out subprime loans in any way.[13] Ginnie Mae had
guaranteed the first mortgage passthrough security of an approved
lender in 1968[14] and in 1971 Freddie Mac issued its first mortgage
passthrough, called a participation certificate, composed primarily of
private mortgages.[14]

All the Devils are Here

In All the Devils Are Here, Bethany McLean and Joe Nocera paint an
interesting portrait of the GSEs, including Fannie. Fannie had been
aggressive in its political fights with Wall Street and Congress in
the 1980s. In the 1990s Fannie ramped up the 'cut them off at the
knees' strategy against political enemies. Tactics included a massive
lobbying effort, neutering the OFHEO (its 1992-created regulator),
creating a "partnership office" network to court the politically
powerful with pork, giving high level employment to the well
connected, giving out campaign contributions, creating a charity
foundation, and threatening critics like FM Watch with retaliation.
One of McLean & Nocera's sources even compared Fannie's activities to
Tammany Hall.[62]

McLean and Nocera also claim that Fannie 'gamed' its affordable
housing numbers, with a process that was referred to internally as
"stupid pet tricks". The National Community Reinvestment Coalition,
National Association of Affordable Housing Lenders, and studies by the
Department of Housing and Urban Development all found the GSEs lacking
in their actual, real support of affordable housing.[

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