Opinion: Pass the parcel, er, Fannie and Freddie, that is, before it explodes

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This is written as an opinion piece because from the look of the debate opinions are about all anyone has to work with any more. Apparently the phrase “run on banks” hasn’t sent a chill where it needs to go, and facts aren’t too popular with anyone.

This is both sides of politics which are against the bailout, too.

“Unlimited” support has naturally raised a lot of questions, but the opposition also seems to be on principle- electoral principle.

The New York Times:

The Republican opposition threatened to incite an ugly intramural fight with the White House. In a high-stakes election year, the resistance reflected the deep fear among some lawmakers that the plan could set off a large taxpayer bailout, touching off a wave of voter anger in November.

For some lawmakers facing tough re-election contests, opposing the rescue plan is a way to reaffirm their identity as budget hawks while publicly breaking with a deeply unpopular lame-duck administration.

The rescue plan, which was hastily prepared over the weekend after a punishing week in the stock market for Fannie Mae and Freddie Mac, calls on Congress to give the administration the authority for up to 18 months to inject billions of dollars into either company through investments and loans

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Ahem. There is a little bit more to this than padding the wallets and soothing the nerves of the current incumbents.

The United States, if it were a corporation, would be heading to receivership if it doesn’t get the act together. That should be sooner rather than later. Because if this talkfest doesn't get replaced by some hard numbers showing the rot is being stopped, the credibility is zero.

The sheer volume of hits on fiscal assets, housing and credit has done roughly the same thing as a nuclear attack, on a value basis and financial losses.

What’s being done is also being done with borrowed money. Foreign interest rates can rise, too, and if they do, US borrowers aren't in the best of positions to deal with that.

Fascinated as the world is with American disasters, it doesn’t have to invest in them. It can just wait and buy in when the dollar goes through the basement.

But the world doesn’t have to pay for the next major screw up by America’s Wrecking Crew of financial idiots.

There's a reason for the lack of enthusiasm. Bit of history here:

Fannie Mae was created as a direct result of the Depression. Between them, Fannie Mae and Freddie Mac hold a lot of public money, and private investments.

This is what Freddie Mac has done to investors in one year:

markets.on.nytimes.com

The stock price was over $60. It’s now down around $6. That’s taken an awful lot of direct investors to the cleaners, and a lot of related 401ks, funds and other little hobbies.

If the FMs go down, they take a few more trillion with them, and a lot of people. It’s about time the US got used to the idea that there is a limit to how much money you can lose before it starts to cost more than you have.

Put it this way, would you invest in that? Even in Australia, anything with American property or bank connections has been getting dumped like last year's sewage.

This situation would have been unthinkable, even ten years ago. The dot com thing was a hiccup, this is emphysema.

The intended bailout is supposed to “reassure” the market. Maybe, but the logic of the situation would have trouble reassuring a corpse.

I don’t intend to act as an interpreter for the comments of America’s elected best and brightest, but here’s a quote which is fairly illustrative of that logic:

The strongest criticism came from Republicans.

“When I picked up my newspaper yesterday, I thought I woke up in France,” Senator Jim Bunning, Republican of Kentucky, said at the hearing. “But no, it turns out socialism is alive and well in America.”

… After Mr. Paulson replied that he did not think any money would be needed, Mr. Bunning said, “That doesn’t answer my question. Where is the money going to come from?”
“From the government,” Mr. Paulson said.

“And who is the government?” Mr. Bunning asked.
“The taxpayer,” Mr. Paulson said.

Mr. Paulson suggested that if Mr. Bunning did not like the plan, he should vote against it.

“I will do everything I can to stop it,” Mr. Bunning said, referring to the Treasury’s plan.

“And maybe you can come up with a better plan,” Mr. Paulson tartly replied.

If that’s socialism, what the hell is capitalism? Who, precisely, is representing what?