Who’s responsible for the giant freedom destroying bailout we apparently are going to have shoved up our collective tailpipes? According to this Bloomberg commentary, it’s our old friends the Democrats:
It is easy to identify the historical turning point that
marked the beginning of the end.Back in 2005, Fannie and Freddie were, after years of
dominating Washington, on the ropes. They were enmeshed in
accounting scandals that led to turnover at the top. At one
telling moment in late 2004, captured in an article by my
American Enterprise Institute colleague Peter Wallison, the
Securities and Exchange Comiission’s chief accountant told
disgraced Fannie Mae chief Franklin Raines that Fannie’s position
on the relevant accounting issue was not even “on the page” of
allowable interpretations.Then legislative momentum emerged for an attempt to create a
“world-class regulator” that would oversee the pair more like
banks, imposing strict requirements on their ability to take
excessive risks. Politicians who previously had associated
themselves proudly with the two accounting miscreants were less
eager to be associated with them. The time was ripe.The clear gravity of the situation pushed the legislation
forward. Some might say the current mess couldn’t be foreseen,
yet in 2005 Alan Greenspan told Congress how urgent it was for it
to act in the clearest possible terms: If Fannie and Freddie
“continue to grow, continue to have the low capital that they
have, continue to engage in the dynamic hedging of their
portfolios, which they need to do for interest rate risk
aversion, they potentially create ever-growing potential systemic
risk down the road,” he said. “We are placing the total
financial system of the future at a substantial risk.”What happened next was extraordinary. For the first time in
history, a serious Fannie and Freddie reform bill was passed by
the Senate Banking Committee. The bill gave a regulator power to
crack down, and would have required the companies to eliminate
their investments in risky assets.If that bill had become law, then the world today would be
different. In 2005, 2006 and 2007, a blizzard of terrible
mortgage paper fluttered out of the Fannie and Freddie clouds,
burying many of our oldest and most venerable institutions.
Without their checkbooks keeping the market liquid and buying up
excess supply, the market would likely have not existed.But the bill didn’t become law, for a simple reason:
Democrats opposed it on a party-line vote in the committee,
signaling that this would be a partisan issue. Republicans, tied
in knots by the tight Democratic opposition, couldn’t even get
the Senate to vote on the matter.
3 responses so far ↓
1 Jason // Sep 23, 2008 at 3:52 pm
I was talking about this with (of all people) one of my bands this morning. How many americans actually support paying out of their own pocket for this bailout. For a bailout that these companies KNEW would come if they overspent and fucked themselves, and low and behold, it came about! Surprise!
Now, that’s question 1. Question 2, is what would happen to the world financial markets if the government DIDN’T step in and do something about it. These companies are so tied to the global financial system that if they all collapsed at once…god knows what would happen.
Ugh. It sucks. We don’t WANT it. We don’t LIKE it. But we NEED it. Great system we’ve built up here.
2 pax // Sep 23, 2008 at 9:59 pm
I just don’t think it’s going to work. We’re at the point that if we do nothing, it’s going to be very bad for at least a year and possibly 2 or 3 years. We’ve been running an economy on bad credit and growing beyond our means.
The problem with bailouts like this is that they don’t solve the problem, they just treat a symptom. As Ron Paul says, “You can’t solve a problem caused by creating money and credit out of thin air by creating more money and credit out of thin air.” (Despite him endorsing a fucking nutbag conspiracy freak for Pres., Paul does know his economics.)
This is just going to put off the day of reckoning, and make it that much worse when that day finally comes.
The truly horrible thing is that now the precedent is set. When the auto companies start dying in a year or two, we’ll be bailing them out too, because think of all the people they employ, and the pensions they pay to their retirees.. On and on it’ll go until there’s no money left for any more bailouts.
Then instead of a year or two of moderate pain, we’ll have a decade of real pain. It’ll be ugly. The 1970s all over again, if we’re lucky. The 1930s, if we’re not.
Regardless, the best thing the government could do right now is nothing at all. The market would crash, but the world wouldn’t end. It’s impossible though for our system of government. Our system is misdesigned so that anytime the best answer is to do nothing and sit tight, we can’t. Any politician insisting that there is no action to be taken to address a given problem will simply lose the next election in favor of someone with a big plan, no matter how misguided.
3 Jason // Sep 24, 2008 at 10:50 am
Agreed on all counts. We’re in big trouble. It’s an unholy mess. The more I read about this, the more I learn about the situation….the more I see that the point of no return has already been passed. Let’s just give up and move to Aruba, and survive as fishermen.
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