Re: Madness: Bailing Out Greed in Wonderland

[David Farber <dave () farber net>]

Begin forwarded message:

From: Declan McCullagh <declan () well com>
Date: September 17, 2008 3:42:21 AM EDT
To: dave () farber net
Cc: Lauren Weinstein <lauren () vortex com>
Subject: Re: [IP] Madness: Bailing Out Greed in Wonderland

David Farber wrote:
> This is the same government that not so long ago made it much more
> difficult for individuals to file for personal bankruptcy, in line
> with the GOPs' call for "individual responsibility" in such
> matters.  In other words, if you're a (formerly) filthy rich
> financial services corporation that screws up -- after getting your
> claws so deeply into the economy that any attempt at removal will
> clause a death by millions of cuts -- the taxpayers will be called
> upon to bail you out.

Yup, that's about right. There's plenty of hypocrisy to go around.

Let's take the case of the Fannie and Freddie bailout. Unfortunately  
for your thesis, it was Barney Frank, a Democrat and committee  
chairman, who was Fannie and Freddie's most ardent defender on Capitol  
Hill and who resisted reform the most. See:

http://online.wsj.com/article/SB122161010874845645.html
"Mr. Frank and other friends of Fan and Fred opposed not only bills  
written to limit the size of their portfolios, but any bill that in  
their view gave an independent regulator too much discretion to order  
a reduction."

And see how Fannie and Freddie's allies lased out at pesky journalists  
who were asking too many questions:
http://online.wsj.com/article/SB121677050160675397.html

When Enron failed, there was no end of fuss and investigations and  
prosecutions, even though I don't recall taxpayers being left on the  
hook for billions. Now that Fannie and Freddie have failed, with a  
former Clinton budget director at their helm during much of their  
apparent mismanagement, have the once-vigilant Feds brought any  
lawsuits against their executives? Even ones who got preferential wink- 
wink-nudge-nudge mortgages from Countrywide's CEO?

> It's completely clear how we got into this position.
> Greed -- lack of appropriate regulation -- the GOP's never-ending
> belief in "trickle-down" economics and their genuine disdain for the
> average working man, all wrapped up in the flag and disingenuous
> talking points of course.

It's true that the Republicans have wrapped themselves, shamefully, in  
the flag when promoting the Iraq war (perhaps soon to be the Iran war  
too). But it's not true that "lack of appropriate regulation" is to  
blame.

There are two major factors that come to mind: The until-recently  
quasi-official status of F&F, and the boom and bust cycle created by  
the Federal Reserve's unreasonable expansion of the money supply over  
the last decade. Both are caused not by a lack of government  
interference, but _too much_ of it.

One Republican politician was saying just this. Here's an excerpt from  
Ron Paul's suggestion in 2003, which, unfortunately, was ignored:

http://www.lewrockwell.com/paul/paul128.html
"Ironically, by transferring the risk of a widespread mortgage default,
the government increases the likelihood of a painful crash in the
housing market... Congress should act to remove taxpayer support from  
the housing GSEs before the bubble bursts and taxpayers are once again  
forced to bail out investors who were misled by foolish government  
interference in the market..."

Now, of course, Paul was proven right. And we have the bizarre  
spectacle of politicians who claim to be for "affordable housing"  
trying to prop up Fannie and Freddie. If F&F didn't exist (or existed  
in a substantially different, privatized form), the housing bubble  
would end more quickly, economic dislocations would be worked through  
more quickly, housing prices would normalize sooner, and homes would  
actually become more affordable.

As I said, plenty of hypocrisy to go around.

-Declan

PS: I recognize that there are other bailouts taking place, and you  
were talking generally. But the F&F bailout is the one I've been  
thinking most about recently, so forgive me for focusing on it.





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