I mean, who could think there’s anything wrong with the economy?
The US government took control of mortgage giants Fannie Mae and Freddie Mac on Sunday, placing them in a government “conservatorship” to help avert a financial system meltdown from the housing crisis.
Treasury Secretary Henry Paulson announced a four-part plan that allows the US regulator to seize control of the government-chartered, shareholder-owned firms underpinning trillions of dollars of home loans.
The plan “is the best means of protecting our markets and the taxpayers from the systemic risk posed by the current financial condition” of the two government-sponsored enterprises, or GSEs.
“Because the GSEs are in conservatorship, they will no longer be managed with a strategy to maximize common shareholder returns, a strategy which historically encouraged risk-taking,” Paulson said in a statement.
Now, this is better than the alternative — an utter collapse of Fannie and Freddie, and a full-blown meltdown of the mortgage industry. But it’s still pretty frickin’ bad, and it’s going to cost the American people a lot of money — although, in defense of the Bush administration (no, really!), it probably was the least bad option on the table.
But this still underlines the problems with the economy, which can’t be wished away by a politician who claims to care about the problems of ordinary folks, and offers absolutely nothing by way of solutions to said problems.
OK – but the problem grew out of government involvement.
Fannie and Freddie are organizations protected from market forces by their government backing – this is what let them take on bad debt and get into the current situation.
And not letting them fail will just encourage further malfeasance – this is the Way of All Beaurocracy. They will just get bigger and sloppier, and cost us more money.
The situation was also made worse by hand-wringing politicians who extended sub-prime loans to unqualified people in the name of “fairness” – inventing a Constitutional “right” to jump into a hot real estate market, even if you don’t have the funds or the credit. Well, anything to get votes in the short-term… and it sounds all progessive-n-caring.
Remember all this when the politicians start talking in earnest about nationalizing our healthcare system.
Government-monopoly ANYTHING does not work.
To be fair, other governments back mortgages and seem to do all right. Of course we have the lowest tax rates of all the western governments, so I suppose you get what you pay for. It’s just the US pays for the failed mortgages by building new houses. Which is why all of our policies favor new builds and sprawl over renovation, repairing, density or renting.
Calling it now: the next president, whoever they are, will not be re-elected. 4-year term. Why? Simply because it’s going to hit the fan so bad in the next 4 years that they’ll go down in history as an incompetent loser like Carter or Hoover (whether those are fair or not isn’t the point – it’s how they’re remembered).
Ben-David, that is pure old American hogwash. Countries in East Asia have been providing heavily subsidized housing for decades, which enabled them to make the switch into middle class societies. Even here, the creation of Public Housing Authorities way back when provided ladders of mobility for millions of Americans, creating a bottom-up opportunity society that cemented America’s economic leadership of the world (though the past couple of decades’ top down policies have come a long ways to undoing that). Yes, this gets ignored because most of us do not directly remember it; but try talking to first time homeowners from that era and not latter day ideological cranks.
Also, Bear Stearns.
I don’t know if that’s actually true. America’s pre-Bush top level income tax rate was pretty standard, for instance, and its corporate taxes are abnormally high.
Maybe other governments do O.K. when they back mortgages because they don’t lend money to people who can’t pay it back.
But this still underlines the problems with the economy
No, it underlines the problem with the government sticking it’s nose into the mortgage business. Ben-David’s analysis holds true. If the government loans money to people that private business decided were too high a risk to loan money to, it’s not the fault of the economy that they defaulted. The answer to the question “Where do people who can’t get a mortgage go to get a loan to buy a house” shouldn’t be “To the government”, it should be “Nowhere – rent, and then either work and save money to the point that you can or else rent for the rest of your life.”
If I wanted to lend money to high-risk borrowers I’d buy shares in a bank that does that. My taxes are best spent elsewhere, such as on education so people can get better jobs. And that way, you don’t get an overheated construction market that then bursts when the banks’ prophecies regarding these borrowers is fulfilled.
Slyphhead, did residents in Public Housing Authorities housing take out government-backed mortgages to buy those properties? IIRC, subsidized housing in America is publicly owned.