Neither fish nor fowl nor good red herring

Congress looks hard at the housing crisis and . . . punts:

The deal includes several compromises. It would allow Fannie Mae and Freddie Mac to purchase loans of as much as $625,000 in high-cost areas of the country, a lower number than many House Democrats wanted but higher than some Senate lawmakers originally envisioned. It would also give the new regulator for Fannie Mae and Freddie Mac more control over the compensation packages received by top executives at either housing-finance giant, an unusual mark of government control over a publicly traded company.

The GSEs got into an enormous mess because their special status allowed them to take an unsafe chunk of the market, its executives were rewarded for risk-taking, and its management was excessively entangled with the government, which made it hard for them to say no when the regulators asked them to take on even more loans.  Congress's plan is . . . more of the same.  Instead of moving to put FM/FM into a more easily understood model--either nationalizing them, or privatising--they're making the GSEs even weirder, and of course, piling on more debt.

It's time for Congress to bite the bullet:  nationalize them, or take them private.  But keeping pet companies on a leash so that you can use them as a sort of housing market slush fund, while pretending that the liabilities you thereby create don't really affect the government, is the kind of thing one expects to see in a banana republic, not a free and prosperous nation.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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