What a depressing prospect – the debate over GSE reform taking the same tack as that over health care. But, as we read some recent calls for GSE “privatization,” they remind us all too vividly of voters opposing “Obamacare” on grounds that it guts their beloved “private-sector” plan, Medicare. The confusion between public and private is just as evident in calls from some to take Fannie and Freddie out in their entirety because FHA can fill in any remaining gaps.

FHA is, of course, a fully government program, just as Medicare is the taxpayer dollars at work sent in by those who press for fully “private” medical insurance. The U.S. will have no more of a privatized housing-finance system with FHA left in place – let alone empowered, as some privateers suggest – than the U.S. will have if the President’s health-insurance plan were somehow repealed next year.

And, of course, even FHA isn’t the half of it when it comes to government involvement in housing finance. There are numerous other mortgage-insurance programs on the books and, while smaller than FHA, they are dearly beloved by key constituents. Could a GOP Congress in its privatizing zeal take out the Veterans Administration mortgage guarantee? Rural housing? No way.

But, okay, let’s concede to our critics that all of the above could be cynical – privatizing fans will recant where they have gone wrong and, for good measure, bring along recalcitrants who might want to do a rearguard defense of tax deductibility and similar subsidies. Will we then have a private U.S. residential-mortgage market?

No chance, we think, because change will come at too high a cost to mortgages the market holds dear – the thirty-year, fixed-rate one top of the list. How could we go back to the good old days of these nice mortgages for the contented middle class without laying the seeds of another S&L crisis? Not without successors to the GSEs that have enough of a government role – guarantee, backstop, whatever – that they can securitize these loans into the bite-sized maturity pieces the market has to have for prudential reasons. Take out securitization and return to portfolio lending and originators will go back to the borrow-short/lend-long liquidity disaster that not only created the S&L crisis, but also contributed handsomely to the one we’re still digging ourselves out of. And, of course, there are the new capital rules – putting more assets on a bank’s books without credit enhancement recognized by regulatory-capital standards isn’t getting any easier.

But wait, we hear the privatizers say, they have an answer to all of this and a way to get the thirty-year, fixed-rate mortgage without Fannie, Freddie, the FHA or any of the risks we posit. Covered bonds, they cry. Covered bonds are to be one key piece of a reformed securitization market where banks issue bonds backed by assets, gaining liquidity protection and funding for new loans even if not desired capital relief. This sounds great in theory, but doesn’t work as well in practice. Would covered bonds in fact be private nirvana? Our read of the pending covered-bond legislation shows a huge role for the U.S. Treasury – essentially a back-door guarantee for these bonds. It’s for this reason that the FDIC rightly fears that covered bonds in their current incarnation could recreate all the conflicted incentives laid so bare at Fannie Mae and Freddie Mac.

None of this is to defend the GSE “hybrid” model – clients know full well how long we’ve argued against it. It’s just first to point out the self-contradictions inherent in calls for privatization based on expectations that the FHA or covered bonds will fix the parts of housing finance private markets can’t handle. And, then, it’s to remind us of the features of the U.S. mortgage market that borrowers won’t give up without a fight – a fight we think they’ll win even with all the strength Republicans will muster after the mid-term.