Bad (Public) Lenders, Good (Private) Lenders?

Could someone please explain to me why Glaeser's argument for not privatizing Fannie Mae and Freddie Mac could not also be used to justify government ownership (at least temporarily as in bankruptcy) or  strict(er) regulation of private sector mortgage lenders and investment banks?

Here's Glaeser:

If the federal government is going to bail out Fannie and Freddie anyway, the fiscally responsible thing to do is to keep them in government hands.

Why wouldn't the same argument apply to private sector mortgage lenders and investment banks, which we also seem incapable of allowing to fail and that have and are likely to continue to behave just as Glaeser expects Fannie and Freddie to behave if privatized?

...the government can write strict rules that limit their [FM] behavior. They can be forced to charge high fees for guaranteeing mortgages. They can be tightly restricted in the types of mortgages they insure.

If they remain government entities, the leaders of the House can play a large role in designing a structure that won’t cost future taxpayers billions. [MU note: yeah, as long as there's nothing in it for their campaign donors.]

All of that control disappears when the entities become private. They will be able to experiment with new products and cut their fees to expand market share. They will be able to hold billions, or trillions, of dollars in their retained mortgage portfolios. They will be able to go back to exerting enormous political influence.

If an entity is going to be able to gamble with taxpayer dollars, then we are far safer if that entity is a slow-moving government bureaucracy than rather than a nimble, profit-seeking company.

This doesn't read like an endorsement of the private sector or the incentives it generates. Doesn't his argument seem to suggest that current regulatory restraints on private sector lenders and banks are insufficient if our goal is to reduce risk to taxpayers? The other thing about this that disturbs me is that this perspective indirectly propagates debunked myths (and here) about the roles of Fannie and Freddie in the mortgage crisis.

It's funny how government control of lenders is so obviously "good" when they're in the (bad) public sector, but the same behaviors that need to be controlled to save taxpayers become "nimble," "innovative," and "entrepreneurial" when they occur in the (good) private, profit-seeking sector, even though, as far as I can tell, taxpayers are equally at risk (especially if new regs are weakened by the GOP).

I must be missing some nuance.

Comments

[Allen Edwards]

What I think you are missing is that Freddie and Fanny have always been special cases. Agency debt, always AAA rated because of the implied backing of the government. Nothing else was similar.

[rjs]

two rights wont make a wrong...

[reason]

Isn't this the argument that Paul Krugman made?