George Will

WASHINGTON -- In the 1994 elections, Republicans ended 40 years of Democratic control of the House of Representatives. So in 1995, a vice president of Fannie Mae wrote a letter to Ed Crane, president of the Cato Institute, saying that Fannie Mae intended to give that libertarian, free-market think tank a $100,000 grant.

Politics produced Fannie Mae. It was created by the government in 1938 to further the government objective of increased homeownership. It was sold -- semi-privatized, sort of -- for a political purpose: to help President Lyndon Johnson finance the Vietnam War. Fannie Mae has no objection to interventionist government; the regulatory state created and cosseted it. And it has always known which side its bread is buttered on -- on both sides, by taxpayers, through the implicit federal guarantee of Fannie Mae's obligations.

But in 1995, Fannie Mae, attempting to ingratiate itself with conservatives, approached Cato with cash, thereby proving that it understands libertarianism no better than it understands subprime mortgages. When Crane responded that Cato never accepts government funding, he received a starchy letter from Fannie Mae hotly denying that it was in any way a government entity.

Well. The implicit federal guarantees -- which enabled Fannie Mae and another "government-sponsored entity," Freddie Mac, to swell up with more than 11,000 employees and $5 trillion in mortgages -- have become explicit. Was Fannie Mae cynical or delusional in 1995? As government entanglement with our less-and-less-private enterprise system increases faster than at any time since the 1930s, remember: Good fences make good government -- fences that clearly demarcate the border between the public and private sectors.

The Financial Times, which is not normally droll, recently began a story: "Tim Geithner is without doubt the most active investment banker on Wall Street these days." He is president of the Federal Reserve Bank of New York. The deals that he and other government officials have brokered, with the backing of government money, may be prudentially necessary because failures of certain financial institutions might congeal the flow of credit that must lubricate recovery. What, however, is the excuse for the corporate welfare for GM, Ford and Chrysler?

George Will

George F. Will is a 1976 Pulitzer Prize winner whose columns are syndicated in more than 400 magazines and newspapers worldwide.
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