After working as a lead negotiator on the, Chairman of the House Financial Services Committee, Barney Frank (D-MA) sure did take a beating from Fox News host Bill O’Reilly. The point of contention? That under Frank’s tutelage, the share prices of Government Sponsored Enterprises (GSEs) Freddie and Fannie declined 90%. (The transcript can be read on the Huffington Post, but the footage is much more vivid and rowdy.)

Indeed, the Democrats have been strenuously attacked for their role in protecting the GSEs from greater oversight. An indicting piece of YouTube extravaganza that has been immensely popular in the blogosphere, reviews clips of the 2004 Congressional Hearings into Fannie Mae’s accounting practices. It systematically highlights resistance to reigning in the GSEs by Democrats, while showcasing that it was Republicans who were demanding reform.

Brian Carney of the Wall Street Journal’s editorial board (see video) has also reviewed the 2004 Congressional Hearings, and concludes that over a period of five years, many congressional representatives, including Frank, were seduced by the very same ideas that held sway over ‘the market’ – that houses were robust assets, that subprime was doing service to the American Dream.  They preferred to defend the ideals of affordable housing at the expense of stronger regulation.

In the midst of the fray, there has been a resurgence of charismatic former Federal Reserve Chairman who was notably dismissiveness of the overheating real estate market earned the dubious honor of having the real estate correction named after him: Greenspan’s Bubble. With regards to the GSEs, Carney identifies Greenspan as being the hero, arguing that lawmakers ignored Greenspan’s repeated warnings that Freddie and Fannie’s portfolios are too large and difficult to hedge.

It would seem as though within the political arena, resolving accounting and managerial scandals at Fannie were put in direct contest with the goals of affordable housing. What should not be forgotten in all of this is that Fannie, as this Washington Post article points out, did not actually pursue the subprime market until 2006, quite late in the blowup, and in order to keep market share. They did however invest in subprime securities issued by private label lenders as early as 2002.

This suggests that a) as investors Freddie and Fannie did nothing more or less responsible than other institutional investors in the market by buying into triple A rated subprime securities; and that b) the political motives of Democrats during 2004, and the evaluation of GSE flaws at that time should not be conflated with later activities to deepen their participation in subprime lending in 2006. By that time subprime has already matured in the private label market, and if anything the GSEs were submitted to competitive pressure to play catch up.

Is this really a brute story of partisan politics, or is this a more subtle tale in here about institutions being caught in shifting rationalities of risk and lending?  I, for one, would tend towards the latter…