William K. Black offers what is, to me, an entirely new spin on the question as to the role of Fannie/Freddie in the mortgage meltdown: they were an "accounting control fraud." Allow me to explain.
For those of you not paying attention, up to now we have observed two camps. In one corner we have Peter J. Wallison, FCIC commissioner, and long the King Pellinore in campaign against Fannie/Freddie as questing beast. Wallison's life-mission, only lightly caricatured, is to prove that our housing woes are the direct consequence of misguided liberals in Congress and their lunatic impulse to try to improve the lot of the poor, deploying Fannie/Freddie as their helpless tool in the inevitable destruction of the free market.
The conventional counter view is--okay, okay, Fannie/Freddie have a lot to answer for, but their problem is not that they tried to serve a suicidal policy; rather, their problem is that they acted too much like a bloated, greedy, grasping, private bank.
Comes now Professor Black with an essay-length blog post declaring that "Wallison is Far Too Kind to Fannie and Freddie." For starters, he basically accepts the conventional defense view; Fannie/Freddie came too late to the party to be the primary culprit. He marshals an impressive array of essential but MEGO-to-the-layman data to support his position; all worthwhile but not my immediate point.
But I want to spotlight Black's argument that it wasn't mere greedy banking. Rather it was "accounting control fraud"--deliberately hyping the data, well understanding that it was shot through with fantasy, but trusting that it wouldn't fall down until the lucky managers had taken their winnings off the table and walked away.
His killer argument: if Fannie/Freddie knew the mortgages on offer were toxic, then why by them? To increase market share? But this makes no sense. If the mortgage is bound to fail, then the best way to increase market share is to let your competitor buy it--and let it implode on his watch, while you reap the profits of the smaller, surer pool of good stuff.
It's a longish and meticulous piece, but it's resounding proof that Black is the go-to-guy on the Fannie/Freddie issue. If you care about this stuff, go read it now.