If you want proof that the Washington establishment has learned nothing from the 2008 financial panic, look no further than the nearby letter from former Fannie Mae CEO Franklin Raines. Our old antagonist is signaling where the debate is heading as Congress finally begins to consider what to do about Fannie and its failed sibling, Freddie Mac.

Mr. Raines writes that “the facts about the financial collapse of Fannie and Freddie are pretty clear.” So let’s review those facts. In Mr. Raines’s telling, Fannie Mae was undone by a decision—made after he left in 2004—to purchase loans “with lower credit standards” just before the bust. But even this managerial decision wasn’t entirely the companies’ fault. Rather, according to the man who presided over one of the largest accounting scandals in history while at the helm of Fannie Mae in 2003, Fan and Fred’s big mistake was chasing Wall Street’s credit standards downward at the end of the boom.

What he doesn’t say is that Fan and Fred had a political and legal mandate to support low-income housing. At the end of 2004, the U.S. Department of Housing and Urban Development released its “housing goals” for Fannie Mae and Freddie Mac for 2005-2008.

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By BRIAN M. CARNEY

To watch President Obama sign the financial reform bill last week was to be reminded of the greatest financial scandal that never was: the collapse of Fannie Mae and Freddie Mac in September 2008, and their subsequent continued existence as money-losing zombie financial companies in the bosom of the federal government.

Fannie and Freddie have liabilities in excess of $5 trillion. They have already directly cost taxpayers nearly $150 billion, with no end in sight. Most of the banks bailed out in the fall of 2008 have gotten back on their feet and many have paid back, or started to pay back, the money provided to recapitalize them at the height of the panic. Not so Fan and Fred. They continue to bleed money, and each quarter brings new losses and new demands on their unlimited line of credit with the federal government, which is to say the American taxpayer. And yet these facts are ignored—not just by Congress or the administration, but by the press and much of the public.

Meanwhile, Fannie and Freddie, failures that they are, have become more central than ever to America’s mortgage industry. They underwrite the vast majority of all new home loans, and they own or guarantee about half of all the mortgages outstanding.

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Subprime Scandal: The taxpayer cost of bailing out Fannie Mae and Freddie Mac could be as high as $1 trillion. Yet Democrats still refuse to reform the toxic twins, making reform meaningless.

Already their $160 billion government rescue has surpassed the amount spent on AIG, Citigroup and other poster boys of the financial crisis, making their liability “the mother of all bailouts,” as one analyst put it.

The failed Washington-based mortgage giants were more exposed to subprime and other junk home loans than any of Washington’s favorite Wall Street whipping boys. And they commanded a much larger share of the mortgage market. Together they owned or guaranteed more than half the mortgages and mortgage-backed securities when they collapsed in 2008.

Thanks to their politically mandated lending goals, congressionally chartered Fannie and Freddie were at the heart of the subprime scandal. We can’t think of two companies more deserving of overhaul.

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