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Fan & Fred Doing Well? What Banker Isn't?
Bernanke has been taking care of the banks. Washington has booted everything else.

http://online.wsj.com/article/SB10001424127887323646604578404432911487270.html?mod=wsj_streaming_stream&cb=logged0.4376599161368331


By HOLMAN W. JENKINS, JR.


There will be time enough for thumbsuckers on what should be done with Fannie Mae FNMA +2.11% and Freddie Mac FMCC +4.57% now that they've become embarrassingly profitable again (Fannie just announced the largest profit in its 75-year history). Let it suffice for the moment to adopt them as a microcosm of the near randomness of Washington policy unless you happen to be part of the financial sector.

For reasons that remain murky, Fan and Fred were seized as insolvent in 2008, though seizing them was redundant because they were already understood to be government-backed. Washington left 20% of their shares in private hands and poured in $187 billion of taxpayer money. It did so for no real reason except to avoid an accounting rule requiring that their debt be recognized as part of the U.S. government's debt (though it is).

Five years later, "failed" Fannie and Freddie, which previously controlled 37% of the mortgage market, now are part of a Washington mortgage complex that controls nearly 100%. On their mortgage guarantee business, they have been minting monopoly margins. A sideshow, though an entertaining one, has been a recent rob-peter-to-pay-peter debate about whether to exploit their previous giant losses to reduce their current tax bills to the Treasury. The same money then could be paid to Treasury as profits.

Fannie and Freddie, under government conservatorship, have become even more of a political slush bucket than they were in their heyday. Fannie and Freddie paid for President Obama's payroll tax holiday. Sen. Dianne Feinstein wants them to refinance underwater mortgages for California homeowners. As if to dispense with any illusions (well, except the illusion that they are still private companies and the government merely is "conserving" them), last August Treasury decided, though it owns 80% of Fannie and Freddie, that henceforth it would take 100% of the profits.

In a country of laws, Fannie and Freddie's private shareholders, whom the government allowed to keep 20%, would have sued. But they haven't sued. In a scene from Putin's Russia, big holders of Fannie and Freddie's junior securities have been visiting Capitol Hill and pleading for visions of "reform" that would restore value to their 20% stub.

Not that Washington has been wholly derelict. Doubting the propriety of Treasury's "cash sweep," an impressive Senate coalition, including Republican Bob Corker and Democrat Elizabeth Warren, is promoting a bill to stop Congressional looting of the housing behemoths and restart the reform process. Even the Obama administration is on record favoring their return to the private sector with a reduced federal backstop.

Unfortunately, the precedents are not good. Iraq, "too big to fail," tax reform—Washington is not exactly home to the sustained effort these days.

Ed DeMarco, Fannie and Freddie's chief regulator, testified to Congress last month and wondered who, five years earlier, would have anticipated so "little meaningful progress to bring these government conservatorships to an end."

Mr. DeMarco might look around. If one formula has been evident in Washington lately, it has been an avoidance of anything that looks like thoughtful reform. In Fannie and Freddie's case, expect them to remain Congress's increasingly profitable slush bucket for the foreseeable future.

Maybe we should all sing a hymn to gridlock as the lesser evil. The stock market has been on a bull run, even if in real terms the nation's corporations are worth less than they were in 2007. The accumulated know-how and entrepreneurial zeal of American business is starting to show again (especially in energy).

If you happen to be among the 90% who have a job and probably never lost it, the results have been nicely tolerable, never mind Friday's employment report. The one consistency has been Ben Bernanke, helping large sums to appear on the bottom lines of our biggest financial institutions so at least the commanding heights of our unreformed financial sector don't come crashing down. Mr. Bernanke continues to be Washington's substitute for all the things it could and should be doing, including reforming Fannie and Freddie.

A version of this article appeared April 6, 2013, on page A13 in the U.S. edition of The Wall Street Journal, with the headline: Fan & Fred Doing Well? What Banker Isn't?.