This story only merits being on A6 of today's Washington Post:
One paragraph later:
The companies, both based in the Washington area, were seized by the
government in September to stabilize their role as the main funding
source for mortgage lending. Fannie and Freddie buy loans from
originators such as banks, allowing new loans to be made before
existing ones are repaid.
At the time, the government promised to cover the companies' losses,
injecting money in any quarter when the companies' liabilities exceed
their assets, up to $100 billion each. Fannie and Freddie raise money
from private investors to fund their loan purchases, and the government
wanted to reassure those investors that the companies would be able to
repay their debts.
Officials said in September that $200 billion was much more money
than the companies would need. Officials now acknowledge that won't be
enough to calm investors. Yesterday, they said that $400 billion would
be much more money than the companies would need.
I cannot tell if the last sentence is supposed to be ironic. I think yes.
I'm glad Fannie and Freddie didn't have anything to do with subprime. I wonder what their portfolios and balance sheets would look like if they had been active in the risky loan market.
The first sentence of the previous paragraph is supposed to be ironic. Just how involved Freddie and Fannie were in the subprime market is something I continue to explore.
I am also fascinated by the unending amount of money Washington continues to commit. Tens of billions for the auto makers. Hundreds of billions for homeowners and lenders. Hundreds of billions for spending to stimulate the economy. There does not appear to be any budget constraint at all. The states are next. What will the price be for all of this spending and how will it be paid?
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Russell,
I'm surprised that you're fascinated but not outraged. It looks like the thieves have been licensed to steal any amount they want. Who do you think will get the money from the mortgage bailout? The borrowers? Who do you think will give the money for the mortgage bailout? The lenders?
I think what is going on cannot be explained by any of the thousands of public choice models developed in the past (almost) 50 years. If you go through any page of 681-pages Mueller's Public Choice (I'm not counting the references), you will not find any thing discussed there that can be useful to understand it. Nor you will be able to make sense of it by reading on the maffia (Gambetta) and lawlessness (Dixit). You have to go to models of predation (maybe a sophisticated version of the stationary bandit) to start to realize how bad the situation is. I have yet to read Leeson's The Invisible Hook; perhaps we should look at the new thieves as pirates (and I mean the ones in DC not in Somalia).
"What will the price be for all of this spending and how will it be paid?"
The price will be all the wealth of everybody and it won't be paid for because there will be nothing left to pay with.
Sir,
"perhaps we should look at the new thieves as pirates (and I mean the ones in DC not in Somalia).
Posted by: E. Barandiaran | Feb 19, 2009 8:39:22 AM"
If you choose to take this view you won't be the first and you will be technically accurate. In actual law the term pirate fits the situation exactly.
My best guess is that the spending will not stop until Inflation has grown to a point at which it is the new crisis. Then and only then will enough Americans decide to pressure the D.C. Politicians to stop all of the irresponsible behavior. My real fear is that by then it will already be too late.
Good call. The only question then is: how do the statesmen figure that the inflationary crisis also requires them to vastly increase their authority?
Uh … yeah. That's what happened during the Reagan years. Americans pressured politicians to be responsible, and the growth of government slowed as politicians responded with fiscal restraint.
Not.
The inherent pressure on politicians is to protect the income levels of their voters.
To paraphrase a famous sign:
"It's about productivity, stupid."
The California Chapter of the Brotherhood of Thieves has made a statement; read
http://www.bloomberg.com/apps/news?pid=20601087&sid=avfMxsPMiQzE&refer=home
Professor Roberts:
Please write a book about the housing collapse, fannie, freddie, the other policies that encouraged this bubble, and the behavior of investors in a mania.
Your knowledge and insight is too great to be confined to this blog and GMU.
Alex
how do the statesmen figure that the inflationary crisis also requires them to vastly increase their authority?
This is an interesting challenge. Generally the outcome of this kind of thing is war, which will suit the political class nicely.
"What will the price be for all of this spending and how will it be paid?"
I would start with a tax on the pediatricians.
VW BANK Krise
von Raivo Pommer
Der oberste Bankenfonds-Kontrolleur beschwert sich, dass die VW-Bank unter den Rettungsschirm darf. Die habe da nichts zu suchen.
Aus den Medien musste Albert Rupprecht (CSU) erfahren, dass jetzt offenbar auch Autobanken unter den Bankenrettungsschirm des Bundes schlüpfen dürfen. Man darf sagen: Einverstanden ist der Vorsitzende des parlamentarischen Kontrollgremiums für den 480 Milliarden Euro schweren Rettungsfonds Soffin damit nicht.
Die VW-Bank soll offenbar staatliche Garantien im Gegenwert von zwei Milliarden Euro erhalten. "Das war so nicht abgemacht", beklagt sich Rupprecht in einem Schreiben an Soffin-Chef Hannes Rehm und den Vorsitzenden des entscheidenden Lenkungsausschusses der Bundesregierung, Finanz-Staatssekretär Jörg Asmussen.
I strongly doubt any of the government's actions are truly intended to benefit the general welfare of the US. There are clearly large interests that will benefit greatly from these bailouts. Those interests will be expected to pay back via campaign contributions and general support for the 'progressive movement'. I've finally figured out that's how it works.
I never imagined that Bushniks were part of the 'progressive movement'.
Martin,
No. Sorry. The Democrats are light years ahead of the Republicans at this game. The scale of the take on this second round of bailout is staggering and it is almost all payout to supporters. Even Dim George would not have gone so far.
<krugman>WHAT ARE YOU TRYING TO DO?? Cause our economy to crash? We must spend, spend, spend, and worry where the money is coming from later. It doesn't matter what we spend it on. We could spend it on burning bales of dollars. ANYTHING and EVERYTHING to stimulate the economy.
</krugman>