McCain-Obama-Backed Bailout of Fannie and Freddie is Bad Policy
While both the Republican presidential nominee, Sen. John McCain, and his Democratic counterpart, Sen. Barack Obama, proclaim themselves "agents of change" as a primary reason for the American people to elect them to the nation's highest office on November 4th, the fact is, neither of these candidates -- or their running mates -- represents a real break with the typical, big-government solutions to problems facing America. This is illustrated most clearly in the latest government "solution" to the "crisis" in the housing sector -- the bailout by the U.S. taxpayers of the two government-created and -supported enterprises, Fannie Mae and Freddie Mac.
All four of the candidates for the country's two major political parties publicly support this latest big government move by the Bush Administration. This puts voters on notice that an administration headed by either the McCain-Palin team, or the Obama-Biden, ticket will be business as usual, and "maverick" in name only.
The federal government has spent decades subsidizing the housing industry, and making it easier and easier for homebuyers to purchase homes, sometimes with virtually no equity stake in the homes they were purchasing. Then the subprime lending crisis hit. Mortgages went bad, lenders folded and investment houses tottered. Earlier this year, the Federal Reserve engineered a $30 billion bailout of Bear Stearns, and just this summer, the administration and Congress agreed to a $300 billion mortgage bailout.
Bankrupt borrowers get federal support while money is transferred to the usual interest groups. The federal government, which has never met a budget it couldn't bust, will counsel over-stretched homeowners about their finances. Congress tossed in an authorization for the Treasury to "invest" in Freddie Mac and Fannie Mae, which have guaranteed $15 trillion worth of mortgages - a large majority of all residential mortgages in the country.
Now the federal government has taken over the two organizations. But the Treasury Department can't tell us what it will cost: Maybe $25 billion; maybe $100 billion. Perhaps more. Who knows?
The old Fannie/Freddie management will get paid handsomely -- several million dollars for each of the departing CEOs -- for messing up while the American people clean up the mess. No one on Capitol Hill or in the White House will be held accountable for designing a system that enriched the housing industry at public expense.
Moreover, neither Sen. Obama nor Sen. McCain will stop the federal government from acting like a soup kitchen for well-connected businesses. Sen. Obama supported the housing bailout and endorsed the administration takeover of Fannie Mae/Freddie Mac. One of his advisers is former Fannie Mae CEO Franklin Raines, ousted for accounting irregularities in 2004.
Is this Sen. Obama's definition of change?
Sen. McCain also supported the housing bill and the Fannie/Freddie bailout. During his nearly three decades in Washington Sen. McCain has been AWOL in working to remedy the "mismanagement and flawed structure of these two companies" that he now claims are so obvious. So much for being the great reformer.
Now Sen. McCain and Gov. Sarah Palin have penned an article promising that they would never, ever let something like this happen again: "For years, Congress failed to act and it is deeply troubling that what we are now seeing is an exercise in crisis management rather than sound planning, and at great cost to taxpayers."
True. But just what was Sen. McCain doing when this sound planning was absent? He got into trouble for befriending Charles Keating, whose failed Savings and Loans cost American taxpayers big money in the 1980s. Sen. McCain collected lots of campaign cash from companies doing business before the Commerce Committee that he chaired. He launched a crusade against steroids use. He authored legislation making it illegal to criticize incumbent politicians before an election, the very antithesis of reform. And McCain attacked pork barrel spending -- which is good, but it only accounts for about $17 billion out of the $3 trillion federal budget.
McCain has yet to offer a reform plan that reforms anything. He and Gov. Palin talk about restructuring Fannie Mae and Freddie Mac, not privatizing them. As long as the organizations are government run, the lobbyists that Sen. McCain and Gov. Palin denounce will manipulate the system for the benefit of everyone but the public. The only solution is to make them truly private and say never again when it comes to government bailouts.
Sen. McCain and Gov. Palin act as if they have discovered an important truth when they criticize dishonest borrowers -- but lying on a mortgage application already is against the law. They say, "We will push the nation's top mortgage lenders to provide maximum support to help cash-strapped, but credit-worthy customers." However, lenders already have an incentive to help these customers, since the companies also lose big from unnecessary foreclosures. Rather, all of the pressure from politicians has been to get banks to provide loans to customers irrespective of their credit-worthiness.
Anyway, how do Sen. McCain and Gov. Palin think bailing out improvident borrowers, lenders and investors will discourage irresponsible behavior in the future? History and human nature tells us that every bailout is both a vehicle for abuse and an invitation for more bailouts. It is far too late for the sort of half-hearted approach that they propose.
If Sen. McCain really believed in straight talk, he and Gov. Palin would say that people should be responsible for the consequences of their own actions. No more bailouts; no more subsidies.
Today the presidential candidates are wasting time arguing about lipstick on a pig while the federal treasury is being looted. America desperately needs serious leadership to respond to serious problems. Unfortunately, this leadership will not come from either the Republican or the Democratic parties.
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Bob Barr is the Libertarian Party's nominee for president, and represented the 7th District of Georgia in the U. S. House of Representatives from 1995 to 2003.
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I do feel that we must be a little more honest about the creation of both Fannie and Freddie along with the utter disregard of the US congress, The Executive Branch, and the lack of knowledge of the citizens of this country about what these two hybrid govt/market entities actually do and who actually absorbs the risk.
Fannie created after WWII to help grow and stabilize post-war housing market. Freddie came later to add the appearance of competition to congress, the pres., and the public. The problem came when the hybrid realized the private (market) portion got to keep the all profits and the govt. portion got to take all the risk. This is just as bogus as the hybrid govt/bank FEDERAL RESERVE system.
The reality is the major banking interest rebundle and sell the loans, reap all the profits, and have the govt grantee the repayment of the asset. It is all either smoke and mirrors, or trap doors and false panels, but it isn’t what people think it is.
Should have been fixed by congress but what do they care. They are only suppose to give the appearance of being responsible for the federal budget and the national debt. The President is always a stooge because he suppose to be. The citizens of this country don’t want to know they just want to complain about less in their paychecks.
Learn about DEBT here:
http://video.google.com/videoplay?docid=-9050474362583451279
On the money. These companies should be left to fail. The bailout money should go to helping the victims of their irresponsible behavior, until another more responsible company can step in. Only then will the slate get wiped clean.
Author of this article, Bob Barr is so right. 814 Billion in American Taxpayer Money to bail out these corporations (with more that might be spent bailing out WaMu soon) and placing government executives in charge of these businesses flies in the face of democracy. It looks to me as if we're on the path of a fully gov't run and socialized national economy. We're moving closer and closer to a black and white, tiered America - one with the have and have nots - as the wealthy and gov't connected put us in debt and take over the economy on our dime. I'm not looking forward to this ostensible shift toward socialism.
Hi Bob,
Glad to see you here and on the Rachel Maddow show.
Where are McCain and his folks? They don't seem as adventurous but only want to stay on the reservation.
Its worth saying again and again:
"Sen. Obama supported the housing bailout and endorsed the administration takeover of Fannie Mae/Freddie Mac" (after taking in hundreds of thousands in campaign contributions from them).
"One of his advisers is former Fannie Mae CEO Franklin Raines, ousted for accounting irregularities in 2004. Is this Sen. Obama's definition of change?"
His economic adviser is the failed CEO of Fannie Mae.
and it is worth saying again and again:
Heavy foreign investment in Fannie Mae/Freddie Mac is why we had no choice but to BAIL THEM OUT.
And McCain's economic advisor, and probably on-deck to be Sec of Treasury is PHIL GRAMM, aka: the sponsor and proud father of the deregulation legislation that led to this mess in the first place.
Mr. Barr:
Might it have been an idea to have had this conversation ten years ago, when you were actually pressing for the passage of Gramm-Leach-Billey? The repeal of Glass-Steagall is now considered one of the primary reasons for for our present financial sector melt down; yet you were for its' repeal.
It would apear that John McCain is not the only one running against his own record.
That's right, Bob. Let's have more free market solutions, because as you see, they work soooo well.
Except of course that there will always be crooks who outsmart the market, and figure out ways to pass risk to others while keeping the goodies to themselves.
That's why we need a greater power out there to control and deter them, with the power to deprive these hustlers of years of their life. That power is called government, and more power to them!
Bob, so long as Obama is getting $127k a year from Fannie Mae and Freddie Mac, you can count on bailouts.
Bob, Get this through your head. Our government is always going to do bailouts. Period. As a libertarian Democrat, all we can do is set in place a minimum of rules, and protect as much freedom and require as much personal liability as possible. It is in crises like these that government over-reaction often occurs. There's going to be regulation, the only question is how much and will it work. Of course, that's why I'm a Democrat. I want to help shape my party, which could, actually, get things done, and do things right.
Wow, a real fiscal conservative. I forgot what those guys looked like, I assumed they have all been too busy counting their cash...
But I really wish Mr. Barr would speak to the role of foreign investment in this crisis - the reason we had no choice but to bail out Fannie Mae and Freddie Mac.
And also I wish he would speak to the loss of our entire manufacturing sector - we don't make anything in this country besides debt and tobacco - and what his solution is to this.
It's easy to bash the current candidates. But it's not so easy to come up with real world solutions that the ADD american public can digest. Which is why all we have to go on right now is that McCain is obviously and admittedly "more of the same" (as much as he is trying to back track and change his message now) and with Obama we have a chance to at least change SOMETHING.
Bob,
There are two types of loans. There is a production loan and there is a consumption loan. Then there is this other type of loan called speculation loan. Played a big big part of the great depression. Played a big big part of this current housing crisis. A lot of banking involves the infrastructure and control of the government. The Fed, the FDIC, the FHLB, and the Fannie & Freddie (not to mention the Treasury who charter national banks and is their examiner).
A simple law prohibiting "speculative" loans that originate at any bank "touched" by government aegis would pre-empt this bubble induced stupidity that we go through every decade or so.
You're an old boy, a patriotic confederate with Republican experience. You should know better than to let all this speculation go on. Whaddaya think about Goldman projecting $150 oil prices, you really think they are "objective" in this. It's long past time to clean house. This financial business really is not about minutiae or marginalia it rests with some fundamental conservative principles all of which have been violated and abused by the "boys" on Wall Street who run this country. This includes slick Willie, devious George, and you. (by the way)
"Speculation loans" have nothing to do with the current economic crisis. The problem is "mortgage loans." Speculation was the major problem in the Panic of 1837 not the Great Depression.
Our problem is not banks making speculative loans, the problem is people borrowing money and not paying it back. The problem is that mortgage-backed securities are only secure when mortgages are honored, they become worth much less than they should be.
In finance, everyone is essentially a speculator. The banks made bad loans and borrowers took on loans that they couldn't afford. If we don't want this to happen again, we need to let these companies crash and burn. This is a painful market correction, but you can't have a free market where banks aren't allowed to fail. You can't have semi-socialism. Banks must absorb the penalty for the risks they take. You can't have a system where banks get to keep their rewards while the taxpayers must absorb their failures.
The price of homes was inflated due to speculation. People were borrowing against speculative value. As prices start to drop to reality borrowers are overleveraged.
Hence "SPECULATIVE LOANS"
I agree with the speculation loans. The oil industry is a good example how high you can drive
the oil by pure speculation of an impending hurricane, disasters, attack, etc. and if there is no
natural phenonemon then one has to be created like the fear of running out of oil.
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