He writes,

This argument seriously misrepresents the issues with Fannie Mae and Freddie Mac. The real problem was that they issued trillions of dollars in MBS that were implicitly backed up by the government. At the time they failed in the summer of 2008, the generally held view in financial circles was that the government would be obligated to honor their MBS regardless of whether or not it kept Fannie Mae and Freddie Mac in business. In other words, the issue was not the $180 billion bailout (about which elite types routinely and misleadingly say we made a profit) the issue was the huge amount of bad MBS that helped propel the housing bubble.

This was a direct result of the perverse incentives created by a system where private shareholders and top executives stood to profit by passing risk off to the government. This incentive does not exist today. This incentive does not exist today. (The line is repeated because policy folks have a hard time understanding it.) As long as Fannie and Freddie are essentially public companies, that do not offer high returns to shareholders and pay outlandish salaries to CEOs, no one has incentive to take excessive risks.

Pointer from Mark Thoma. The argument to which he refers is that government support for mortgage securitization is fine, you just do not want to depend on one or two big securitizers.

I think that Baker should watch his back, because the ruthless housing finance lobbyists are back in action. For saying similar things, I have had quite a few epithets hurled at me (“Koch brothers mouthpiece” being one of the milder ones). Agree or disagree with Dean Baker, at least you can say that his opinions are not for sale to the mortgage finance lobby.