TightWind is written by Kyle Baxter. Stay Hungry. Stay Foolish.

Threats, bribes, and shameless corruption. The Washington Post has a long-ranging story on Fannie Mae’s business — securing special favors and winks and nods from government oblivious, or all too knowing, of the monster it created.

This is what happens when government is allowed to intervene in the economy to further its goals:

Fannie Mae and Freddie Mac enjoyed the nearest thing to a license to print money. The companies borrowed money at below-market interest rates based on the perception that the government guaranteed repayment, and then they used the money to buy mortgages that paid market interest rates. Federal Reserve Chairman Alan Greenspan called the difference between the interest rates a “big, fat gap.” The budget office study found that it was worth $3.9 billion in 1995. By 2004, the office would estimate it was worth $20 billion.

As a result, the great risk to the profitability of Fannie Mae and Freddie Mac was not the movement of interest rates or defaults by borrowers, the concerns of a normal financial institution. Fannie Mae’s risk was political, the concern that the government would end its special status.

So the companies increasingly used their windfall for a massive campaign to protect that status.

The company is not subject to market forces, because the government will bail them out. Instead of focusing on sound business, they focused on receiving special favors from the government. The Clinton administration allowed Fannie Mae and Freddie Mac to become this corrupt because they provided affordable loans, which fulfilled Clinton’s agenda of increasing home ownership, even if it meant complete and utter corruption in Fannie Mae and government.

The Bush administration fell into the same trap with their “Ownership Society” goal. The ends for both administrations justified the means, and now we are seeing the results. This is what happens when government is allowed to intervene in the market so forcefully.