Posted on 09/14/2008 10:31:30 AM PDT by Graybeard58
Most Americans lack the financial acumen or simply don't have time to figure out what Fannie Mae and Freddie Mac do, why they're in trouble or how the government should respond to their plight. The bailout numbers being thrown about — some say $200 billion; others gloomily predict a $300 billion bill to taxpayers — are so large, one might as well speculate on the size of the universe.
For the vast majority of us who just don't get it, a five-word answer is freely given by the financial gurus in government and on Wall Street: "It's too big to fail."
What does that mean?
The simple answer is if something that big goes belly-up, the stench will spread into the deepest recesses of American life. Those promoting a bailout — whether the beneficiary is Bear Stearns, Lehman Brothers, Fannie Mae and Freddie Mac, or, warming up in the bullpen, America's Big Three automakers — are sounding tones reminiscent of the movie scene in which the "Ghostbusters" warn of an impending apocalypse. "Human sacrifice, dogs and cats living together — mass hysteria!"
Economists soberly say allowing a business or even a segment of the economy to fail creates opportunities that never would emerge in the event of a bailout. Bailouts, or even the prospect of a bailout, distort corporate behavior and problem-solving. Are Fannie Mae and Freddie Mac fundamentally flawed, corrupt or simply poorly managed? Bail them out and we'll never know. Let them fail and we'll know by the patterns that emerge as the financial industry picks up the pieces.
The government deems itself compelled to take over Fannie and Freddie, which hold or back $5 trillion in mortgage debt, for two major reasons. First, Congress veered from corrupt to oblivious. As recently as July, Sen. Christopher Dodd, chairman of the Senate Banking Committee, said: "To suggest somehow that (Fannie and Freddie) are in trouble is simply not accurate. The facts are that Fannie and Freddie are in sound situations." Apparently, not much has changed since then-Rep. Dodd said in 1975, "The greatest gift our country can give the Cambodian people is not guns but peace."
Oops.
Second, Congress essentially forced Fannie and Freddie managers to invest in risky loans during the grand crusade against "redlining," or denying loans in urban neighborhoods because the risk of default was too high. Believing, correctly, that the government would institute a bailout if these loans went sour, managers were happy to oblige.
As a practical matter, the government was in the lending business. Now it's in hip deep, no qualifiers needed. How that will distort the market is anybody's guess.
As part of the takeover, Treasury Secretary Henry Paulson sensibly replaced the Fannie and Freddie executives. But what is to be done about their overseers? Sen. Dodd and others on the Banking Committee were manifestly derelict in their duty and should be forced to resign from the panel, for they're no less culpable than the executives who got the boot from Mr. Paulson.
Or are Sen. Dodd and his committee cohorts also too big to fail?
Ping to a Republican-American Editorial.
If you want on or off this list, let me know.
Say it LOUD. Say it often.
>> Why do I owe for somebody elses incompetence?
Indeed. And, unless the stupid and incompetent and corrupt are allowed to suffer for their folly to a degree they won’t soon forget, it will just happen again.
Let the markets work.
From forcing me to flush my toilet with 1.2 gallons of water, to CFLs, and Hi-tv and my mortgage....lets get the gubmint involved in just about every conceavable aspect of our lives so they can show us how much better they can make all of our lives by taking away what you worked for and giving it to some schmuck who has his hand out.
Hey! I got an idea! Lets raise the minimum wage AGAIN!!!
AMEN !
You don’t.
Nor do I, and I’ve never even applied for a mortgage!
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