So why is it that the dialogue was really about one party believing that the other simply didn't believe in the mission of the GSEs and was just out to destroy them for ideological reasons? Why weren't our politicians able to put aside the political grand standing on homeownership, put away their partisan politics, read the balance sheets of the two companies and focus on the core issue: maintaining the financial health of Fannie Mae and Freddie Mac on a go-forward basis?

In my view the answer is that the mortgage GSEs were seen more as vehicles for politician gain then they were seen as vital parts of the global financial system; as long as home ownership rates were going up, as long as someone felt their community "needed the GSEs", and as long as touting the mission of Fannie and Freddie served their purposes they had zero interest in tinkering with the two companies.

For evidence of this look no further than the fact that Congress authorized the GSEs to expand the scope of their investment activities after the onset of the credit crunch, despite the fact that both companies began losing money once the housing downturn hit (and even when they did it was due to tax treatment). Again, Congress wasn't especially interested in maintaining the financial health of the mortgage GSEs, they just wanted to appear as if they were doing something to halt the slide in housing prices.

Apparently speaking honestly with the American people about the fact that housing prices were hyper-inflated during the boom, and that the real estate market was going through a very necessary correction, was simply not an option for them.

The recent problems with the mortgage GSEs could've been avoided if Congress had reined them in years ago (or the very least in the wake of the credit crunch), instead of choosing politics over common business sense. After all there were many analysts and notables (such as Warren Buffett) who warned about the risks posed by Fannie and Freddie, so it's not like Congress can say that no one warned them. While it's fair to deride their executives for running the companies into the ground, the politicians on Congress' banking and financial services committees deserve a large share of the blame as well.

All of this begs the question: can we really trust politicians to manage entities like the GSEs or any other key private sector investments/companies, et al, if there is a risk that their political aims, partisan politics/bickering, et al could prevent them from making the right decisions?

Final thought: does anyone else  feel nervous about the fact that the very people who ran the GSEs into the ground are now working on the bailout bill? How about the fact that they will be working on additional solutions to the current crisis, new banking regulations, etc?

You can read the transcript excerpts in full here.

Sources:

The WSJ: "What They Said About Fan and Fred" -- October 2, 2008.

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.