Housing Plan: Mitigation Through Modification

Barack Obama has released his plan for dealing with the housing crisis at FinancialStability.gov and in a speech in Phoenix. It's not a moment too soon - housing starts are at a record low, and the glut of foreclosures threatens to crash property values, bankrupt the financial institutions who relied on mortgage sales and therefore sink the economy. So clearly we need relief.

What is foremost in the plan is keeping people in their homes, which is vital, because each foreclosure costs the economy about $250,000. The executive summary of the plan explains how the White House will seek this goal:

The Homeowner Affordability and Stability Plan is part of the President’s broad, comprehensive strategy to get the economy back on track. The plan will help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. In doing so, the plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs. The key components of the Homeowner Affordability and Stability Plan are:

1. Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affordable

2. A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners

3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac

While I don't think low mortgage rates should really be a goal, on balance this is a good idea. Using Sheila Bair's FDIC loan modification plan as a template, it lets Fannie and Freddie refinance mortgages for at-risk borrowers at rates they can afford, and then encourages lenders to do the same through various incentives. The good framing here is that every homeowner will get a boost from this because their property values will rise. This blunts the expected rebuttal that the plan rewards bad decisions. And to be sure, conservatives will be screaming about that, even though they were demanding that something be done just a few days ago as a way to reject the stimulus. Now they'll reject the housing plan. They are rejectionists.

The plan will not aid speculators or house flippers. And it retains the option of allowing bankruptcy judges to modify mortgages in their courts, or "cram-down." This is the stick that lines up with the carrot for lenders to make the modifications themselves.

Remember that hackneyed talk about "a bailout for Main Street" as opposed to Wall Street? I have to say that this looks like exactly that. As David Leonhardt explains.

In coming weeks, his administration will begin spending $50 billion to entice banks to reduce the monthly payments of people who otherwise couldn’t afford to stay in their houses. In effect, the government will split the losses on these mortgages with banks [...]

There are some big advantages to this approach. Bailing out all underwater homeowners would be tremendously expensive. All told, about $500 billion in mortgage debt is already underwater, and it’s impossible to know in advance who is likely to walk away. So the government would have to spend hundreds of billions of dollars to help millions of people who don’t need help staying in their homes.

Leonhardt is worried about the consequences of the homeowners who are "underwater" (they owe more on the home than what it's worth) walking away from their homes, which would cause foreclosure rates to skyrocket. It is a concern, but if communities can be preserved through mitigation of the most troubled homeowners, this could stabilize values and maybe even bring some houses back above water. I don't think the government should be re-inflating the housing bubble. So this seems like the best approach.

And if you combine this inside game with the increasingly successful outside game being played by community activist groups like ACORN, who are supporting families who refuse to leave their homes, and you see a situation where the banks are really unable to do anything but rewrite terms. That's going to cause some stability for millions of people. You'll still see foreclosures because of unemployment, but they will be manageable. That's the promise of this policy.

Susan Ozawa has more.

The Old "That Thing You Didn't Say Isn't True" Trick

Marc Danzinger writes at Winds of Change under the name "Armed Liberal." In my scattered meetings with him, I've found him to be neither armed nor liberal, but maybe I caught him on a bad day. A few weeks ago, we appeared on a radio show together, and we got into a discussion over whether or not Fannie Mae and Freddie Mac could be blamed for the financial meltdown, which is a tautological discussion at the outset, because the idea that there's one simplistic answer for something so complex isn't an argument worth having. But I made my points, and he made his, and then a week or so later he wrote this long piece on his website that I imagine he considered the definitive takedown of moi.

Now, I was fully prepared to let this go, but this "Fannie and Freddie did it!" meme has shown no sign of letting up, with House Republicans calling for a special counsel to investigate the GSE's role in the crisis, and in particular the conduct of former Clinton Administration officials (Man, that old Whitewater magic has some kind of pull). They desperately want to push this off onto any organization that has ties to Democrats to absolve themselves. So I'm compelled to respond.

In his post, Armed Liberal cites the conversation we had on the radio.

Dave and Marcy Wheeler were taking the "Fannie had nothing to do with this" position. I countered with "I've got this 92-page Powerpoint from the Milken Institute that says otherwise..."

Dave immediate dismissed it, saying "Did Fannie or Freddie make subprime loans?" And while I went to get the appropriate slide from the deck to show him, we moved the conversation along - because according to Brad, no one cares.

But I do, and I'll suggest that we all should. because they did, and further because of who they were and their position in the financial ecology, what they did was dramatically more important than what any other single institution chose to do.

Well, let's stop right there, because that's a misstatement of what I actually said. I never said "Did Fannie or Freddie make subprime loans?" I said "Did Fannie or Freddie guarantee or securitize subprime loans?" And I know that's what I said for two reasons. One, he has the damn mp3 on the site. And two, I was quoting a post I had written that very day which contained that very specific language:

• Fannie and Freddie did not guarantee and securitize subprime loans. Such loans didn’t meet their conforming loan standards. In fact, as the subprime market was building, Fannie and Freddie lost market share because they were under stricter standards. Thus, their participation in the secondary market did not assist in the creation of the subprime market.

• It’s true, however, that Fannie and Freddie were damaged by the subprime crisis because everyone in the housing sector was damaged by falling home prices and, more significantly, the two companies branched out into a broader investment portfolio. In that portfolio were included mortgage-backed securities that hurt all of those who purchased them. Fannie and Freddie weren’t the biggest players in this and, most importantly, started this practice very late in the game. In fact, the subprime market had already started to go bad when they started their purchases (which speaks poorly for Fannie and Freddie’s decision making, but precludes them from responsibility for the crisis).

• Fannie and Freddie were supposed to be more closely supervised than other lenders—with their own regulator, which was supposed to keep a special eye on them because they are important institutions. Those regulators, who were part of the Bush administration, failed along with the rest of the Bush regulatory apparatus to stop the problem.

In the first paragraph, you see that Fannie and Freddie were losing market share, and were basically forced into a subprime market that was already created and well underway. In fact, it was their foot in the free market that forced them into that. This weird hybrid of a "government-sponsored entity," still responsible to shareholders, demanded that Fannie and Freddie chase the market.

Now, Armed Liberal uses the quote of mine he fabricated to "prove me wrong." But there is a major difference between what I said and what he thinks I said. Fannie and Freddie "made" subprime loans, after the market was in place and the bubble was set (Armed Liberal even quotes a WaPo piece saying that they didn't get into the market until 2006), but they didn't guarantee and securitize them. They bought mortgage-backed securities as part of a broader investment portfolio. That was stupid, as they were under-capitalized. But they wanted to show their shareholders that they were going where the mortgage market was going and finding a way, despite their loan conforming standards, to be a part of it.

The problem with the mortgage market was that these shaky loans were sliced and diced into securities that were sold off to others. Fannie and Freddie did not and could not perform that. They got involved when the market was already collapsing. There's a difference between dumb and responsible. If they didn't purchase MBS's, there was a giant pile of money (Big Shitpile) ready to do the same.

When Armed Liberal pulls out the main slide that proves all this (here's an excerpt of his text):

Now if you'll recall, this all started when I suggested, arguing with Marcy Wheeler, that Fannie and Freddie did have something to do with the meltdown. Dave Dayen countered with "do Fannie and Freddie make subprime loans?" And I was flipping through the deck, looking for this slide:

You'll note that 61% of the loans Freddie had in its retained portfolio in 2006 were subprime, and a further 25% were Alt-A.

It's the kind of thing you wish you'd had at your fingertips when you're arguing in public...

As to Fannie, in 2006 the ratios were 46% subprime and 35% Alt-A.

I'll send this link over to Marcy and Dave (as well as Brad) and see what they have to say.

What I'll say is that you're looking at their stock protfolio. This lists the percentages in the mortgage-backed securities they purchased, and that has been ably spun by the Milken Institute (where this guy's "proof" comes from) into Fannie and Freddie being solely responsible for them. That's just silly, for reasons described above.

You don't really have to believe me on this one. You can go ahead and look at the reporting:

Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.

Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height from 2004 to 2006.

Federal Reserve Board data show that:

More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.

Or the United States Treasury Department:

The PWG found that the principal underlying causes of the turmoil in financial markets
were:

• a breakdown in underwriting standards for subprime mortgages;
• a significant erosion of market discipline by those involved in the securitization process, including originators, underwriters, credit rating agencies, and global investors, related in part to failures to provide or obtain adequate risk disclosures;
• flaws in credit rating agencies’ assessments of subprime residential mortgage-backed securities (RMBS) and other complex structured credit products, especially collateralized debt obligations (CDOs) that held RMBS and other asset-backed securities (CDOs of ABS);
• risk management weaknesses at some large U.S. and European financial institutions; and
• regulatory policies, including capital and disclosure requirements, that failed to mitigate risk management weaknesses.

(You won't see Fannie and Freddie referenced in there, with the possible exception of the regulatory policies that failed to mitigate risk management, where I completely agree. But of course this is because they were forced by their quasi-private status to operate like everyone else in the market. My remedy for that comes later.)

... or former Treasury Secretary John Snow, SEC Chair Chris Cox, and former Fed chairman Alan Greenspan, and believe me, if there was a scapegoat to be had, they would have no problem using it.

Today in a House Oversight Committee hearing with former Fed chairman Alan Greenspan, SEC chairman Christopher Cox, and former Treasury secretary John Snow, Rep. John Mica (R-FL) revived that argument. He also tried to tie the crisis to Sen. Barack Obama (D-IL), holding up a chart called “Follow the Money Trail.” He pointed that Obama has been the largest recipient of donations from Freddie and Fannie. (Actually, he’s the second highest.)

Committee chairman Henry Waxman (D-CA) chastised Mica for trying to turn the financial crisis into a political issue. He noted that Freddie and Fannie “certainly played a role” in the current situation, but then asked the witnesses, “Do any of you believe that they were the cause of this financial crisis?” All three men said no. Watch it:

I don't know why Armed Liberal has such a hard-on to blame Fannie and Freddie, and I'm not going to go all Matt Taibbi on him and ridicule him for not knowing what the hell he's talking about. Instead I'll try to find some common ground. This was a private sector problem, a failure of regulation and a failure of overwatch on the runaway securitization of loans and the insurance and bets made behind the loans. To the extent that Fannie and Freddie were a part of that, late in the game, it was because they were part of the private sector. I see absolutely no reason to have government-sponsored entities that are partially public and partially private. I imagine this makes it easier to perform poor risk management because the risk is taken away from you. So I would take them permanently off the private market so they could stick to their core function instead of chasing wealth. If this were the case, no lobby shop would be available to press Republicans and Democrats alike to back off any meaningful regulation.

So we need to re-regulate the market and make Fannie and Freddie what they always should have been - backstops. As for Armed Liberal, the next time he wants to argue with me, it'd be nice if he quoted me accurately.

...just to elaborate on this a bit, I'm always skeptical of anyone who leads this off with "subprime loans." The problem of them was not their existence but the securitization. There are also regular loans in those MBS's, and there are loans to people who qualified above subprime but were given one of the more exotic loans. The securitization made everyone generally feel confident, that even if a bunch of loans failed they were a small subset of the total market and so lending standards could be acceptably thrown out. Fannie and Freddie were on the other side of that transaction. They shouldn't have bought them in 2006 and beyond, but they simply weren't responsible for creating the instruments, and their absence from the market wouldn't have collapsed it at all - the dot-com bubble flowed very naturally into the housing bubble, and all the global money went nicely with it.

Also, I associate myself with Ezra Klein's remarks about how we can actually find blame in all of this and use that evidence to create new solutions, essentially a new oversight structure that treats banks for what they do and not who they say they are, and treats insurance like insurance (I'm talking about CDS's here). Do read them.

Hey Kids, Let's (Pretend To) Buy A Bank!

There was a ridiculous amount of news for a Friday night, the foremost being that President Paulson is finally giving in and doing what should have been done in the first place, purchasing an equity stake in failing banks. The problem is that he is still doing it wrong.

WASHINGTON - Treasury Secretary Henry Paulson said Friday that the Bush administration will move ahead with a plan to buy stock in financial institutions.

Paulson said the program to purchase stock in financial institutions will be open to a broad array of institutions.

The administration received the authority to make direct purchases of stock in banks in the $700 billion measure Congress passed last week to rescue the nation’s financial system [...]

Paulson said the government’s program would be designed to complement the efforts of banks to raise fresh capital from private sources. He said that the government’s stock purchases would be of nonvoting shares so that the government will not have power to run the companies.

Actually, we need the power to run the companies, or at least tell the bankers what to do, more specifically that they must lend to one another. They aren't the kind of shares that Warren Buffett got from Goldman Sachs. If this doesn't change bank behavior then it essentially will do nothing. A bank that refuses to lend is not a functional bank, and the government ought to take it over. As Krugman says, this is a half-Gordon - referring to Gordon Brown's recapitalization plan (not the part about suing Iceland).

Worse, the G7 finance ministers aren't coordinating their efforts.

Oct. 10 (Bloomberg) -- Finance ministers and central bankers from the Group of Seven nations signaled reluctance to adopt a coordinated effort to shore up banks, risking a deeper crisis of confidence after this week's crash in global stock markets.

As equities worldwide suffered their worst week since the 1970s, officials gathering in Washington said they were seeking new ways to stem the meltdown. Still, they argued that tailoring efforts to the needs of individual nations was better than a cross-border plan.

The G-7 is considering including in its statement saying that no bank of systemic importance will be allowed to fail, and may outline principles all nations should follow, two European officials told reporters in Washington. Still, the group is unlikely today to endorse a U.K.-style commitment to guarantee loans between banks, an official from a G-7 member said.

AND, it appears that Paulson is going to use Fannie and Freddie to kickstart the buy-up of troubled assets, essentially widening the money pool:

Federal regulators directed Fannie Mae and Freddie Mac to start purchasing $40 billion a month of underperforming mortgage bonds as the Bush administration expands its options to buy troubled financial assets and resuscitate the U.S. economy, according to three people briefed about the plan.

Fannie and Freddie began notifying bond traders last week that each company needs to buy $20 billion a month in mostly subprime, Alt-A and non-performing prime mortgage securities, according to the people, who asked not to be identified because the plans are confidential. The purchases would be separate from the U.S. Treasury's $700 billion Troubled Asset Relief Program.

Because the $700 billion is going to go to recapitalization, yet he has to reward his banker friends by overpaying for their trash.

AND, GM is talking merger with Chrysler, just weeks after securing a $25 billion dollar loan from the Feds.

These are just the economic Friday news dumps.

And they worry me. Paulson is still trying to work a heist instead of fix the fundamentals. And the market has thus far responded very poorly to heists.

Retreats, Parachutes, And My Little Bald Congressman

Let's talk about these AIG junkets, because I don't want to miss the outrage train. Some people are trying to make excuses for this because the company had already planned the luxury retreat, and it was for top salesman in a part of the business that was not at all part of the company's failure. Yeah, I'm going to go ahead and give a big "Who the fuck cares" on that one. At some point, when you fail so utterly that you have to ask for $85 billion from the government, you kind of shift around your executive party planning. Not to mention that they've already used most of the loan before even selling off any assets, and they ended up securing another $38 billion from the government after that. In their defense, AIG's "Blog Relations" unit says they're very very sorry and won't be holding any fun events in the near future, but I'm not in such a forgiving mood.

However, I think the bigger snake here is Richard Fuld, the head of Lehman Brothers, who should be associated with the likes of Leona Helmsley the rest of his life. The Treasury Department make a huge mistake using Lehman as a guinea pig and letting them fail, which accelerated this crisis. But Fuld hung on to $480 million in salary while his company made horrible decisions and contributed to the ruination of the financial markets.

Called on to explain why Lehman collapsed last month, Fuld began with a note of humility, saying he felt "horrible" over the demise of the 158-year-old institution. "I want to be very clear," Fuld said. "I take full responsibility for the decisions I made and for the actions I took."

In a brief speech which was heard in silence, Fuld told legislators that if he could turn back the clock he would do many things differently. As soon as he finished speaking, sparks began to fly.

The chairman of the committee held up a chart suggesting that Fuld's personal remuneration totalled $480m (£276m) over eight years, including payouts of $91m in 2001 and $89m in 2005.

"Your company is now bankrupt and our country is in a state of crisis," said Waxman, a liberal from California. "You get to keep $480m. I have a very basic question: Is that fair?"

After a long pause, Fuld said the figure was exaggerated: "The majority of my compensation, sir, came in stock. The vast majority of the stock I got I still owned at the point of our [bankruptcy] filing."

Waxman cut him off, saying that even if the figure was slightly lower, it was "unimaginable" to much of the public. "Is that fair, for a CEO of a company that's now bankrupt, to make that kind of money? It's just unimaginable to so many people."

"I would say to you the $500m number is not accurate," said Fuld. "I'd say to you, although it's still a large number, for the years you're talking about here, my cash compensation was close to $60m, which you've indicated here, and I took out closer to $250m [in shares]."

Hey, leave the guy alone, he only got $250 million that he admits to! And not only is this a matter of his CEO pay, which is annoying but kind of tangential to the problem, but while he was seeking aid from anyone and everyone, he was negotiating giant pay packages for his fellow executives.

That's behavior that makes you feel happy when you hear he was punched in the face.

From two very senior sources – one incredibly senior source – that he went to the gym after … Lehman was announced as going under. He was on a treadmill with a heart monitor on. Someone was in the corner, pumping iron and he walked over and he knocked him out cold. And frankly after having watched this, I’d have done the same too.

This would have been nice oversight for Rep. Waxman to have before the bailout bill, but I think it's worth it to both tar and feather these execs, figuratively but hopefully also literally, in front of the public. After much hounding from conservatives, Waxman will also investigate Fannie Mae and Freddie Mac to see how much they didn't have to do with this crisis.

This Has The Look Of A Zombie Lie

The right-wing narrative has been set - the federal government forced the lenders to give houses to black people and Hispanics, they couldn't pay back, "Fannie and Freddie went wild," and they brought the whole system down.

It should be noted that we've had housing downturns before in this country, and none of them caused the financial markets to collapse (the Depression was more about monetary policy, stock speculation, and trade). The extreme leveraging (and the exemptions given to investment firms to double their leveraging limit) and bundling of exotic securities, as well as authorizing awful loans, is the new element here, and both the CRA and the GSEs have nothing to do with that.

Let's clarify the causes of current circumstances. Ask yourself the following questions about the impact of the Community Reinvestment Act and/or the role of Fannie & Freddie:

• Did the 1977 legislation, or any other legislation since, require banks to not verify income or payment history of mortgage applicants?

• 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision; another 30% were made by banks or thrifts which are not subject to routine supervision or examinations. How was this caused by either CRA or GSEs ?

• What about "No Money Down" Mortgages (0% down payments) ? Were they required by the CRA? Fannie? Freddie?

• Explain the shift in Loan to value from 80% to 120%: What was it in the Act that changed this traditional lending requirement?

• Did any Federal legislation require real estate agents and mortgage writers to use the same corrupt appraisers again and again? How did they manage to always come in at exactly the purchase price, no matter what?

• Did the CRA require banks to develop automated underwriting (AU) systems that emphasized speed rather than accuracy in order to process the greatest number of mortgage apps as quickly as possible?

• How exactly did legislation force Moody's, S&Ps and Fitch to rate junk paper as Triple AAA?

• What about piggy back loans? Were banks required by Congress to lend the first mortgage and do a HELOC for the down payment -- at the same time?

• Internal bank memos showed employees how to cheat the system to get poor mortgages prospects approved that shouldn't have been: Titled How to Get an "Iffy" loan approved at JPM Chase. (Was circulating that memo also a FNM/FRE/CRA requirement?)

• The four biggest problem areas for housing (by price decreases) are: Phoenix, Arizona; Las Vegas, Nevada; Miami, Florida, and San Diego, California. Explain exactly how these affluent, non-minority regions were impacted by the Community Reinvesment Act ?

• Did the GSEs require banks to not check credit scores? Assets? Income?

• What was it about the CRA or GSEs that mandated fund managers load up on an investment product that was hard to value, thinly traded, and poorly understood

• What was it in the Act that forced banks to make "interest only" loans? Were "Neg Am loans" also part of the legislative requirements also?

• Consider this February 2003 speech by Countrywide CEO Angelo Mozlilo at the American Bankers National Real Estate Conference. He advocated zero down payment mortgages -- was that a CRA requirement too, or just a grab for more market share, and bad banking?

The answer to all of the above questions is no, none, and nothing at all.

Honestly, most of these charlatans on the right probably don't know what Fannie (FNMA) and Freddie (FHLMC) stand for. They just want something to yell about. And the GSEs sound as good as anything else.

I'm glad that activists are fighting back against this not-too-subtle racism. It won't be successful, but at least they're putting another narrative out there.

The head of the National Urban League is calling on Treasury Secretary Henry M. Paulson Jr. to refute statements by conservative politicians and pundits that subprime mortgages provided to minorities led to the financial crisis and a $700 billion federal rescue of Wall Street.

In a strongly worded letter to Paulson this week, Marc H. Morial said Paulson has "an obligation to correct the misinformation that is spread concerning the root cause of the current financial crisis."

Morial, a former mayor of New Orleans, said in an interview yesterday that the effort "to pin the subprime crisis on African Americans and Latinos" is a "big lie."

"It's an effort to shift the climate away from deregulation and the lack of oversight," he said. "The numbers are becoming clearer each day that a large number of people who ended up with a subprime loan could have qualified for a prime loan. That's the abuse that's inherent here."

I think that ultimately, reasonable people would agree on that as the cause of the crisis. Those who want to believe something else are being fed an alternate take. It's disgusting.

Pointing One Finger Outward Means Three Are Pointing Back At Yourself

The wingnuts are really ramping up this blame of the Community Reinvestment Act of 1977 (I always like to put the date in there, just to show how ridiculous it all is) for the current financial crisis. It's bunk. What actually happened is that the tech bubble popped and there was a lot of global investment money that needed a place to go, so the financial industry packaged these mortgages and created a demand for them, which led to lax lending regulations, so they could give out more mortgage-backed securities, which led to more demand, etc., to create a new bubble. And now we're seeing this one pop. Despite the complexity of the financial instruments, it's pretty simple. But the wingnuts don't want simple. They want to muddy the waters and reduce the blame to the darkies.

In fact, even if this was about loaning to the "wrong" people the Bush Administration was in the position to stop it. But the "homeownership rates are high" talking point was valuable in a struggling economy with stagnating incomes, and their Wall Street friends were making bank, so they let it happen.

But it wasn't. The CRA has nothing to do with this crisis.

• The CRA was passed in 1977—over 25 years before subprime loans came into vogue. So the timing is wrong.

• The CRA only covers commercial banks and savings-and-loan institutions—not other forms of mortgage-offering enterprises. Fact is, most subprime loans weren’t made by the lenders subject to CRA.

Fannie and Freddie aren't to blame either:

• Fannie and Freddie did not guarantee and securitize subprime loans. Such loans didn’t meet their conforming loan standards. In fact, as the subprime market was building, Fannie and Freddie lost market share because they were under stricter standards. Thus, their participation in the secondary market did not assist in the creation of the subprime market.

• It’s true, however, that Fannie and Freddie were damaged by the subprime crisis because everyone in the housing sector was damaged by falling home prices and, more significantly, the two companies branched out into a broader investment portfolio. In that portfolio were included mortgage-backed securities that hurt all of those who purchased them. Fannie and Freddie weren’t the biggest players in this and, most importantly, started this practice very late in the game. In fact, the subprime market had already started to go bad when they started their purchases (which speaks poorly for Fannie and Freddie’s decision making, but precludes them from responsibility for the crisis).

• Fannie and Freddie were supposed to be more closely supervised than other lenders—with their own regulator, which was supposed to keep a special eye on them because they are important institutions. Those regulators, who were part of the Bush administration, failed along with the rest of the Bush regulatory apparatus to stop the problem.

Of course, it's a lot easier to blame the victims of predatory lending instead of the predators themselves. It's easier to cast blame instead of taking the hard look inward. In this brilliant essay, Thomas Frank says that the GOP instinct for blame-evasion is world class:

This is a movement, after all, that blandly recasts its greatest idols as traitors once their popularity has crashed; that routinely sloughs off responsibility for . . . well . . . anything since, by its logic, conservatism has never really been tried in the first place. Consider in this respect Mitt Romney's remarkable speech to the Republican convention a few weeks ago, in which he rallied his party against Washington -- a place his party has controlled, to one degree or another, for nearly three decades -- by listing the city's various institutions and crying, "It's liberal!"

Or consider the way the House Republicans torpedoed the bailout bill a few days ago. The real reason they did it was almost certainly to evade responsibility for an unpopular measure but the announced reason seemed designed to convince the nation's 7-year-olds -- because Nancy Pelosi said something mean.

On economic questions the standard exculpatory maneuver is even simpler. When some free-market scheme blows up, one needs only find an institution of government in close proximity to the wreckage and commence accusing.

And the reaction to being called on this lie on the right is to stick their fingers in their ears and pretend they never heard it.

It's entirely possible, indeed probable, that nothing proposed is a solution to this crisis we face - if housing values continue to plummet, which they should in a functioning economy to deflate the bubble, all the trickery in the world won't be sufficient. But the key conservative goal here is to elude responsibility, for responsibility might mean having to actually change their practices and have their free-market fundamentalism collapse upon them.

Today In The Greatest Transfer Of Wealth In World History

Lots of talk about a deal today in Washington, perhaps with bankruptcy relief, perhaps not, perhaps with less money parceled out in stages, perhaps not, perhaps with executive compensation limits, perhaps not. The big White House photo-op is happening as we speak. I do want to direct you to the very sharp Peter Orzsag, who says that, despite the claims of those involved, this plan won't work:

The director of the Congressional Budget Office said yesterday that the proposed Wall Street bailout could actually worsen the current financial crisis.

During testimony before the House Budget Committee, Peter R. Orszag -- Congress's top bookkeeper -- said the bailout could expose the way companies are stowing toxic assets on their books, leading to greater problems.

"Ironically, the intervention could even trigger additional failures of large institutions, because some institutions may be carrying troubled assets on their books at inflated values," Orszag said in his testimony. "Establishing clearer prices might reveal those institutions to be insolvent."

Yes, that's the whole point. This isn't a liquidity crisis, it's an insolvency crisis. While nobody knows what this toxic paper is worth, that's actually keeping the market afloat in a way. Unless the Treasury wildly overpays for the paper, a scenario like Orzsag's could absolutely play out.

Meanwhile, I have to clear up yet another effort by conservatives to muddy this issue and find a scapegoat. Conservatives keep shooting their mouth off about Fannie Mae and Freddie Mac like they somehow created all these bad loans. They are not responsible for this mess, and are being used as a scapegoat and a stand-in for "shiftless black people getting home loans."

But here's the thing: Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago, an explosion that dwarfed the S&L fiasco. In fact, Fannie and Freddie, after growing rapidly in the 1990s, largely faded from the scene during the height of the housing bubble.

Partly that's because regulators, responding to accounting scandals at the companies, placed temporary restraints on both Fannie and Freddie that curtailed their lending just as housing prices were really taking off. Also, they didn't do any subprime lending, because they can't: The definition of a subprime loan is precisely a loan that doesn't meet the requirement, imposed by law, that Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income.

Mark Thoma expands on this today. Fannie and Freddie had capitalization problems, but they were dragged down with the rest of the housing market from the bubble bursting. They didn't cause the problem.

But that's besides the point. American taxpayers are going to be on the hook for a bailout (and the foreign lenders aren't coming to the rescue) and they ought to be seriously pissed off about it. I'm pessimistic about the deal we're going to end up getting.

...Just saw Sen. Dodd and Bennett announce an "agreement in principle" on the bailout, but Bennett is not the ranking member, Richard Shelby is. If this gets pushed through without Congressional conservatives we're toast, maybe not now but in the near future.

So Much For That Attack

John McCain's campaign was eager to paint Barack Obama as a tool for special interests in the lending industry. They cut guilt-by-association ads linking him to figures inside the company. It was going to be great.

All that evaporated when the New York Times revealed that Rick Davis, McCain's own campaign manager, was taking $15,000 a month from Freddie Mac for lobbying services, and today they advanced the story:

WASHINGTON — One of the giant mortgage companies at the heart of the credit crisis paid $15,000 a month from the end of 2005 through last month to a firm owned by Senator John McCain’s campaign manager, according to two people with direct knowledge of the arrangement.

The disclosure undercuts a statement by Mr. McCain on Sunday night that the campaign manager, Rick Davis, had had no involvement with the company for the last several years.

It actually shows that statement to be a lie, but hey, semantics. Newsweek ran with this scoop as well.

Can I just say that Rick Davis might be the worst top staffer for a major-party Presidential candidate since Susan Estrich? They guy ran such a bad campaign through the spring that he had to be kicked upstairs in favor of Steve Schmidt. Then he spouts off about how the campaign is "not about issues," a line the Obama campaign had fun with for weeks. And his lobbyist past keeps intruding on McCain's message, and in this case he was literally kept on Freddie Mac's payroll solely because of his relationship with McCain. He's not only unhelpful, he's downright harmful.

The Homeownership Alliance, the consortium Davis headed, was created by Fannie and Freddie to curtail excessive regulation on the two GSEs. And I'd add that the goal of it was also to encourage and increase homeownership across socioeconomic and racial lines, a cause Davis championed, so the notion that Democrats caused the mortgage crisis by letting black people own houses is frankly ridiculous.

By the way, Paul Begala was a paid consultant to Freddie Mac, and they had far less of an impact on the mortgage problems of this country than McCain, looking for a convenient scapegoat, suggests. This is more about McCain swinging wildly at Obama with a charge and having it rebound on him. But with Freddie and Fannie now under investigation by the FBI for unspecified "fraud", clearly those organizations are toxic, and Davis' retainer will be questioned.

And The Lies And Distortions Continue

So I guess McCain has been slamming Barack Obama's ties to individuals in his orbit with ties to Fannie Mae and Freddie Mac, while having his campaign manager receive millions from the mortgage giants to lobby for them against increased government regulation:

Senator John McCain’s campaign manager was paid more than $30,000 a month for five years as president of an advocacy group set up by the mortgage giants Fannie Mae and Freddie Mac to defend them against stricter regulations, current and former officials say [...]

...several current and former executives of the companies came forward to discuss the role that Rick Davis, Mr. McCain’s campaign manager and longtime adviser, played in helping Fannie Mae and Freddie Mac beat back regulatory challenges when he served as president of their advocacy group, the Homeownership Alliance, formed in the summer of 2000. Some who came forward were Democrats, but Republicans, speaking on the condition of anonymity, confirmed their descriptions.

“The value that he brought to the relationship was the closeness to Senator McCain and the possibility that Senator McCain was going to run for president again,” said Robert McCarson, a former spokesman for Fannie Mae, who said that while he worked there from 2000 to 2002, Fannie Mae and Freddie Mac together paid Mr. Davis’s firm $35,000 a month.

After the Obama campaign decided to make an issue of this, McCain decided to shoot the messenger and claim that the New York Times is not a real news organization. Which I'm sure endeared them to their conservative base, but is pretty much a non-answer answer. It certainly doesn't address Davis' lobbying on behalf of deregulation, which matches up perfectly with the words out of McCain's mouth:

Q: In 1999, you were one of the senators who helped pass deregulation of Wall Street. Do you regret that now?

McCAIN: No. I think the deregulation was probably helpful to the growth of our economy.

While McCain is hiding behind Obama on the subject of the Wall Street bailout and hoping not to catch any shrapnel, he has been vocal, along with key Democrats, in rejecting massive golden parachutes for CEOs of the effective companies. Which is a solid argument, made less solid by having a CEO who received a golden parachute as a member of your economic inner circle:

On NBC this morning, host Meredith Vieira noted that (Carly) Fiorina “is an example of exactly the kind of person you say is at the root of the problem.” McCain replied, “I don’t think so”:

McCAIN: I don’t think so. … Because I think she did a good job as CEO in many respects. I don’t know the details of her compensation package. But she’s one of many advisers that I have.

Q: But she did get a $45 million dollar golden parachute after being fired while 20,000 of her employees were laid off.

McCAIN: I have many of the people, but I do not know the details of what happened.

“How can you not know the details of her past? I mean, that would be awfully important,” Vieira responded.

This is a familiar dodge for McCain, feigning ignorance when challenged with a question that he knows has a terrible answer.

It's getting to be embarrassing for this guy.

The Old Distract And Dodge

The financial system is a mess. We're about to spend trillions, plural, on paying off super-wealthy executives who made terrible decisions. This is the result of nonexistent oversight and deregulation as well as a policy of expanding inequality and stagnating wage growth, all of which has been championed by John McCain and the Republicans for decades. And Barack Obama knows it.

[McCain] said that he is calling for the firing of the Security and Exchange Commissioner. Well I think that is all fine and good, but here is what I say: In 47 days, you can fire the whole Trickle-Down, On-Your-Own, Look-the-Other-Way crowd in Washington who has led us down this disastrous path. Don’t just get rid of one guy, get rid of this administration, get rid of this philosophy, get rid of the do-nothing approach to problems and put someone in there who is going to fight for you.

So what is John McCain to do? Take Karl Rove's advice and lie his head off.

A day before the Arizona Republican began criticizing Barack Obama for taking economic advice from former Fannie Mae executive Frank Raines - a dubious claim that was challenged even by the source who first reported it - the former Bush strategist urged McCain to do just that.

During an appearance on Hannity and Colmes on Wednesday, Rove outlined what he thought would be the best counterattack for McCain to launch the opposition's way: mainly, tie the current financial and housing market crisis to the Democrats and play guilt by association with Obama.

"I do think that McCain and Palin ought to identify that the source of this contagion, the thing that started these dominos going down was the misbehavior of Fannie and Freddie, who I would remind you are the biggest part of the bailouts," he said. Earlier in the program, he had specifically brought up Raines' name in this context.

A day later, McCain echoed Rove's advice. On Thursday evening, the Senator's campaign released an advertisement declaring that Frank Raines was an Obama economic adviser. "Shocking," declared the ad, citing the mismanagement that occurred under Raines' reign, as well as his large compensation package. Shocking, indeed. The Associated Press and other news outlets reported hours later that the claim was not honest. Raines had even told a senior McCain aide, in a private email, that he was not an Obama adviser.

Nevertheless, Rove's charge made its way into Friday's speech as well, where McCain criticized Obama again for turning to Raines, but also for initially tasking Jim Johnson, another former Fannie CEO, with heading his vice presidential search committee.

It's pointless to start arguing about how McCain has Fannie and Freddie lobbyists on his staff too, far more than Obama, but OK, let's go ahead anyway.

He is, without a hint of shame, attacking Obama for having connections with two former Fannie Mae executives. At the same time, one of McCain's top policy advisors, Charlie Black, was lobbyist for Freddie Mac for 10 years, while his campaign manager, Rick Davis, lobbied to help Fannie and Freddie steer clear of additional federal regulations (which, obviously, would have been pretty helpful in retrospect).

But wait, there's more. Tom Loeffler, who served as McCain's campaign co-chairman, also lobbied for Fannie Mae. Aquiles Suarez, a McCain economic advisor, was a Fannie Mae executive. Dan Crippen, a McCain advisor who helped craft the campaign's health-care policy, lobbied for Fannie Mae (and Merrill Lynch). Arthur B. Culvahouse, who helped lead McCain's VP search committee, also lobbied for Fannie Mae. In all, McCain has 19 people who are either advisors or fundraisers who lobbied for either Fannie Mae or Freddie Mac.

And voters are supposed to be outraged because of Obama's connections to Franklin Raines and Jim Johnson? Why would McCain even start on this subject at all, making the argument that ties to Fannie/Freddie are scandalous, given his own associations?

The point is that this is a dodge. Fannie and Freddie's problems are the result of a larger inattention to the practice of letting anyone with a pulse have a mortgage, and then banks leveraging themselves to the eyeballs to gamble on these people. McCain is vulnerable on the economy and he expects people not to know the intricacies of this byzantine crisis, so he's lying. Again.

What's more, it's a distraction. Instead of having an argument on how we got here and what needs to be done to get us back on our feet, we get inscrutable attacks like this:

My friends, this is the problem in Washington. People like Senator Obama have been too busy gaming the system and haven't ever done a thing to challenge the system. That isn't country first, that's Obama first.

Does anyone know what he's talking about? Gaming the system?

This is the classic Chewbacca defense, a distraction to keep people off balance. At this point, it's McCain's only chance of winning the election. I don't think Obama will bite.

Send Them Home Poor

Barack Obama on the Fannie and Freddie execs:

Senator Barack Obama and two other prominent Democrats urged federal housing regulators on Tuesday to cut the golden parachutes of the ousted leaders of Fannie Mae and Freddie Mac, another sign that the government bailout of those mortgage giants could reverberate through the presidential campaign.

Mr. Obama, the Democratic presidential nominee, asked that any “inappropriate windfall payments” to the chief executives and senior managers of those agencies be voided, in a letter to Treasury Secretary Henry M. Paulson Jr. and the director of the Federal Housing Finance Agency, the new regulator for Fannie and Freddie.

Together, Daniel H. Mudd of Fannie Mae and Richard F. Syron of Freddie Mac are eligible for as much as $24 million in severance, retirement benefits and deferred compensation.

“Under no circumstances should the executives of these institutions earn a windfall at a time when the U.S. Treasury has taken unprecedented steps to rescue these companies with taxpayer resources,” Mr. Obama wrote.

(standing on my table clapping)

You know, this kind of populism could be reported on. It could be acknowledged that Obama opposes taxpayer funds going directly to CEO windfalls while John McCain's own fundraiser is installed as the new head of Fannie Mae. It could be noted that Obama seeks to end the privatization of government resources while McCain has at 20 fundraisers who have lobbied for Fannie and Freddie.

It could be turned into a narrative about which candidate is on your side and which isn't.

It won't be, because there's important "common idiom parsing" to be done.

RELATED: Mike Oxley sez White House extremists and Alan Greenspan are responsible for this mess.

Free Market Capitalism

So the government decides to heed their foreign paymasters and bail out Fannie Mae and Freddie Mac, which is really a proxy bailout of the entire financial industry, which would have been on the hook for all of their bad loans. This adds to the list of the government, in recent years, bailing out the airlines and various banks. And there are plans - bipartisan plans - to bail out the U.S. auto industry. As a result of the Fannie and Freddie bailout, the stock market goes wild.

This is known as "capitalism." Not corporate Marxism. How dare you. And everyone knows that what we need is less government.

...One thing that would be super-duper, by the way, is if the woman who may be the next Vice President of the United States knew how Fannie and Freddie actually function.

...We're also about to bail out the national highway fund, because higher gas prices have led to less collections from gas taxes. Remember that John McCain wanted to SUSPEND the gas tax, which would put taxpayers on the hook for far more than the current proposed $8 billion dollar bailout. Capitalism.

Fannie And Freddie

The rumors were true, and Fannie and Freddie are getting the bailout treatment.

The Bush administration yesterday prepared to take over the troubled housing finance companies Fannie Mae and Freddie Mac, after concluding the companies don't have enough capital to continue to play their crucial role funding home mortgages.

Under the plan, engineered by Treasury Secretary Henry M. Paulson Jr., the government would place the two companies under "conservatorship," a legal status akin to Chapter 11 bankruptcy. Their boards and chief executives would be fired and a government agency, the Federal Housing Finance Agency, would appoint new chief executives.

The action, which would be one of the most sweeping government interventions in private financial markets in decades, is planned for today, according to several sources.

These GSE's, these hybrid private-public entities, aren't bound to be successful anyway in an economic downturn or sector-wide collapse, because they remove the element of risk and organically move toward a bailout. You can either nationalize or privatize, the blend doesn't work. This is not about saving Fannie and Freddie but saving the banks that hold all these Fannie and Freddie-issued bonds.

Ian Welsh is someone I look to on these issues. Here he is:

From a public policy point of view this is a bad way of doing something that's necessary. There's no particular reason why preferred shareholders shouldn't be wiped out along with common shareholders - owners of companies that go belly up should lose everything. Likewise, men like Pimco's Bill Gross made big bets by piling into Freddie and Fannie's debt in the expectation of a government bailout, when they knew that the debt was bad if the government didn't bail Freddie and Fannie out, and they are going to win those bets. Again, when normal companies go belly up, debtors don't get all their money up and one shouldn't be rewarding men who deliberately bought debt they knew was bad. Going into conservatorship is the equivalent of going belly up. Bondholders should take a haircut—they shouldn't lose everything, but they should certainly lose whatever they would have lost if Freddie and Fannie had been allowed to go bankrupt like normal companies. To not do so is a clear case of moral risk; a clear case of bailing investors out of their own bad decisions; and a clear case of shifting money from taxpayers to private interests [...]

Freddie and Fannie had to be bailed out, don't get me wrong, but this is about the worst way of doing it if your idea was to avoid moral risk and to protect the taxpayer's pocketbook, rather than those of investors.

It's really about where we go from here. A nationalized agency that encourages homeownership, maybe underwriting loans with clear restrictions and guidelines, isn't necessarily a bad thing, at first blush. But let's not stray from the fact that free-market, unregulated capitalism failed in this regard, and failed miserably. Some Republican flaks are trying to pin this on the Democrats, but deregulation in the markets led to the sector-wide housing failure, and they have to own that.

Helping the Little Investor

So the long-awaited housing bill passed Congress, and I'm supposed to be cheered by the fact that 400,000 homeowners in danger of foreclosure are going to get some measure of help, the extent of which is unknown. But I can't help but wonder why it's any business of the federal government to throw a lifeline to investors in publicly traded companies. The idea that shareholders get scooped up in the bailout because of perhaps legitimate needs for a large institution to be saved doesn't make any sense. There are plenty of ways to separate the two.

I've heard members of Congress say that the stockholders have already lost 80 percent of their investment. So what? Losing 80 percent is better than losing 100 percent. Furthermore, not all stockholders bought their shares last year. Some bought their shares last month, just before the Fed, Treasury, and Congress came to the rescue.

So, what's the deal? I don't want to think bad things about our political leaders, so what legitimate reason could they have for putting Fannie and Freddie stockholders ahead of children needing child care and health care or seniors who can't afford to pay for heating oil this winter?

Now, we know why Republicans do this - shareholders are their base, and poor people needing help with their heating bill certainly aren't.

(Just a moment to marvel at that - Republicans are stamping their little feet that they haven't been allowed to shovel billions of dollars in leases to their oil company buddies, so they're holding hostage poor people who need energy assistance.)

Democrats, of course, are the recipients of a lot of banking industry largesse now that they're in the majority. And we know that this housing bill had a substantial portion of it written by Bank of America lobbyists. So they look the other way when their bailout of Fannie and Freddie gives a push to the shareholders and not just the homeowners.

It's the dirty business of politics, and if a bunch of far worse indignities haven't been tossed on us then I'd be more willing to accept them.

UPDATE: Paul Krugman has more today. Short version - there had better be fundamental reforms coming down the road, or we're screwed.

Don't Call It A Bailout

Just a helpful action that will cost taxpayers $25 billion dollars.

July 22 (Bloomberg) -- Treasury Secretary Henry Paulson's rescue package for Fannie Mae and Freddie Mac will probably cost $25 billion, the Congressional Budget Office said.

"There is a significant chance -- probably better than 50 percent -- that the proposed new Treasury authority would not be used before it expired at the end of December 2009,'' the nonpartisan agency, which provides economic and budget analysis for lawmakers, said in a report today.

I don't have a complete problem with a bailout that helps shield homeowners from foreclosure. A bailout that shields investors and executives from the consequences of their decisions is the problem.

On a related note, this is a very interesting speculative article about that other recipient of a federal bailout, Bear Stearns. I'm not sure I totally buy this, but there's an implication that the firm fell victim to a surge of short-sellers that drove their stock price into oblivion. The larger point here is that the financial business is so complicated that this becomes plausible, and the ostensible reason for the attack was that Bear was keeping above water in the credit crunch, so it all goes back to the same source.

Let The Bailout Begin

Fannie and Freddie, meet Sir Henry, your white knight:

Treasury Secretary Henry Paulson swung the weight of the federal government behind Fannie Mae and Freddie Mac, the beleaguered companies that buy or finance almost half of the $12 trillion of U.S. mortgages.

Paulson, speaking on the steps of the Treasury facing the White House, asked Congress for authority to buy unlimited stakes in and lend to the companies, aiming to stem a collapse in confidence. The Federal Reserve separately authorized the firms to borrow directly from the central bank.

The announcement followed crisis talks between the firms, government officials, lawmakers and regulators, after Fannie Mae and Freddie Mac lost about half their value last week. Paulson and Fed Chairman Ben S. Bernanke are trying to prevent a collapse in the companies that would exacerbate the worst housing recession in 25 years and deepen the economic slowdown.

As Chris Dodd explained on Blitzer today, all the regulations needed to rein in the mortgage industry are already on the books. The regulators were asleep at the wheel, they let the lenders run wild, and in the end, we all paid for it. So the cheap mortgages and the social benefits of home ownership are far outweighed by this bailout. Fannie and Freddie held half of the mortgages in an industry that piled on risk without creating a cushion should increasing numbers of the loans go bad. Krugman's column on this today points out that this government rescue was inevitable, and that the broader economy won't be affected. After all, they are government-sponsored entities which are insured in the event of failure or difficulty. But there's a cumulative effect on consumer confidence when you see Bear Stearns and Fannie & Freddie and IndyMac going down one after another. The other problem here is that refusing to force investors to pay for the consequences of their actions will institutionalize bad behavior. I agree with Atrios:

Actually, Fannie and Freddie can be allowed to fail. Their shareholders can eat shit, and they can be reconstituted as a wholesale federal entities. There are zero reasons that I can think of that we should have shareholder owned entities which "probably but not necessarily" are going to get a government bailout every time they need it.

Both short and long term we might think that having such creatures exist to be mortgage backstops is a good idea. I probably agree with that. But there is no reason for them to be publicly traded companies.

In other words, they should have been nationalized all along, as a guarantee against just such a crisis. But that would conflict with the "privatize everything" view in the Republican Party.

The 2nd-Largest Bank Closure In US History Is All In Your Head

It's a mental failure.

IndyMac Bank's assets were seized by federal regulators on Friday after succumbing to the pressures of tighter credit, tumbling home prices and rising foreclosures.

The Office of Thrift Supervision said it transferred IndyMac's operations to the Federal Deposit Insurance Corporation (FDIC) because it did not think the lender could meet its depositors' demands.

IndyMac customers with funds in the bank were limited to taking out money via automated teller machines over the weekend, debit card transactions or checks, regulators said.

It's all psychosomatic! John McCain told me so!

I felt better after talking to the bubbly Crist, who's like human Prozac. "How can you not be optimistic about Florida?" he asked. "Is there a more beautiful place on the planet?" He then recounted a story that probably won't help him in the GOP Veepstakes: "John McCain told me, 'It's tough in those Rust Belt states. You really feel a bit of depression in people's outlook. But when you get to Florida, people feel great.'"

He didn't use the magic words "bitter" and "cling," and also he's not a Democrat, so this won't be a real story.

Getting back to the IndyMac takeover, combine that with the imminent failures of Freddie Mac and Fannie Mae and you're looking at the makings of a real crisis. Like run-on-the-bank kind of stuff. Freddie and Fannie account for half of the nation's mortgages and are indeed too big to fail, so ensuring that less homeowners foreclose on them is paramount. Good day for the Senate to pass foreclosure legislation. The Congress has been asleep on this for too long.

Financial Mess Gets Messier

I am not what you would call an economist, but I'm pretty sure this is a horrible sign:

Alarmed by the growing financial stress at the nation’s two largest mortgage finance companies, senior Bush administration officials are considering a plan to have the government take over one or both of the companies and place them in a conservatorship if their problems worsen, people briefed about the plan said on Thursday.

The companies, Fannie Mae and Freddie Mac, have been hit hard by the mortgage foreclosure crisis. Their shares are plummeting and their borrowing costs are rising as investors worry that the companies will suffer losses far larger than the $11 billion they have already lost in recent months. Now, as housing prices decline further and foreclosures grow, the markets are worried that Fannie and Freddie themselves may default on their debt.

Under a conservatorship, the shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee — which could be staggering — would be paid by taxpayers.

Shares of Fannie and Freddie have already lost half their value today.

The problem here is that we're looking at another bailout of financial services. And so the taxpayer bears the risk of mortgage speculation caused by investors. They got rich for years but won't have to give that money back. Socialize the risk, privatize the profit.

Bonddad has more on Fannie and Freddie, which are sort of public and sort of not, and now will be completely public in this bailout scenario.

Amazingly enough, after the financial sector's deregulated Nirvana fucked up the economy for years, if not decades, to come, now the government wants more regulation. It's similar to how now, budget hawks want to tackle the deficit, after Republicans busted it, just in time to constrain a possible Democratic President.

Now all of this isn't to say that the Peterson foundation's basic idea "live within your means" isn't a good one. Many of us here in the blogosphere have been screaming this from the rooftops for years. (Welcome to the party, lads. Pass the ammo. And where were you the last 6 1/2 years. Hmmmm?) They're absolutely right that debt services charges are an awful thing to spend money on. But somehow the problem for folks like Peterson is never the precipitous decline in capital gains taxes, or corporate tax rates, or estate taxes; nor is it spending too much on the military, the huge bleeding ulcer of Iraq, or the massive tax cuts for the rich. Somehow it's people who need healthcare or old folks getting Social Security checks. Somehow there's never a billion dollars to say 'well, one way to fix medical costs is single payor, and every health care expert who isn't paid not to know, knows it" but there is a billion bucks to go after "entitlements". Somehow there isn't a billion bucks to go after the fat cats who benefit from bloated Pentagon budgets which don't make the US one whit safer.

And somehow there wasn't a billion bucks to stop Bush and the Republican Congress from going on a drunken warmongering spending and tax cutting binge, but now that there's a possibility that Democrats might be in charge, fiscal responsibility is important again. Spending money on tax cuts for the rich and for unproductive foolish wars is one thing—but the very idea that it should be spent on old folks and sick people, well, that won't do.

I really want off of this treadmill...