In retrospect, allowing two government sponsored entities to leverage their government granted advantages into a massive duopoly that could destroy the entire American housing market, probably wasn’t such a good idea. If only someone had warned Congress about the problem. Oh wait, someone did. Heritage scholar Ron Utt wrote in 2005:
The real problem is the concentration of risk in the hands of two massive and privileged companies that now dominate America’s housing finance markets.
Ironically, Fannie Mae’s management has attempted to use the prospect of such risk to protect itself from better government oversight. In response to the U.S. Treasury’s effort to improve oversight, former FNMA President Frank Raines admitted in a letter to U.S. Treasury Secretary John Snow that financial market instability could occur if even the slightest concern about the FNMA’s operations were openly discussed: “From the beginning of our discussions, you and I have agreed to avoid disrupting the capital markets by indicating a wish to change Fannie Mae’s charter, status, or mission.”
Lest one think that such an occurrence would be a distant possibility, the record reveals that federally sponsored financial institutions, including those that the federal government closely regulates and insures, have a knack of frequently exploding in hugely horrific and costly ways. Since the mid-1980s, massive losses have occurred in the federal Farm Credit System, the Federal Deposit Insurance Corporation, and the Federal Savings and Loan Insurance Corporation. Worse, the heavily regulated and supposedly closely supervised savings and loan industry collapsed more than a decade ago, and repairing the residual damage cost the U.S. taxpayers $130 billion.