W hen the federal government steps in to cushion the inevitable consequences of bad decisions, taxpayers almost always are left paying the bill. Rewarding risky or even fraudulent behavior in this manner guarantees more of the same. Congress chartered the Federal National Mortgage Association, better known as Fannie Mae, during the New Deal to make it easier for the average American family to buy a house, still a cornerstone of the American Dream and one of the best ways to accumulate family wealth. Fannie Mae buys home mortgages from lenders to free up money for new mortgages. When it went private in 1968, Fannie Mae retained significant tax benefits and could borrow money at a lower rate than anybody else in the mortgage industry. That should have practically guaranteed its continued profitability.

But then more recently came the greed of Fannie Mae’s top executives, led by Chief Executive Officer and former Clinton budget director Franklin Raines, who overstated earnings by $10.6 billion so they could cash in on millions of dollars in bonus money they did not deserve, according to a 2006 federal report. Overstating is a nice way of saying they lied big-time.

As National Review’s Byron York pointed out in 2006, the culture of corruption at Fannie Mae rivaled the most serious corporate scandals, including Enron and WorldCom. Raines and his sidekick, former Fannie Mae Vice Chairman Jamie Gorelick — who served as Clinton’s deputy attorney general — took home tens of millions of dollars apiece in bonuses between 1998 and 2004, when Raines was finally forced out. Neither was ever charged with fraud, much less sent to prison.

Had these former executives been held personally accountable for deliberately misleading investors and government regulators, current Fannie Mae officials might have been a lot less eager to snap up more than $35 billion in questionable subprime mortgages from shady companies like Countrywide Financial, now accused of deceiving borrowers with misleading advertisements.

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With no incentives to say no, Fannie Mae and sibling Freddie Mac helped inflate the real estate bubble by taking on trillions of dollars of debt, triggering huge bonuses for their own top executives as well as investment bankers, mortgage brokers and Wall Street speculators.

A million foreclosures later, this party is clearly over. But the people who enriched themselves by lying and ignoring basic underwriting standards will not be handed the cleanup bill, the taxpayers will. Only in Washington is that considered a solution.