Opinion: Congress passes Fannie and Freddie bill, now will it work?

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People don’t seem to realize that if companies who are guaranteeing $12 trillion worth of mortgages go under, that means the banks and either go under or take massive losses. Which, of course, means the consumer will take huge hits from all directions.

The credit crunch is no myth. It’s there because lenders are scared of a real crash, and with this kind of money involved, it’d be a huge crash.

Critics have been saying, with justification, and a lot of support from the lucky souls trying to find somewhere to live, that nothing responsible for this unbelievable mess should get a cent of taxpayers money.

Nobody who’s seen a headline in the last 11 months disputes that.

This really isn’t about Congress or anyone else being too keen on saving sleazy, brain dead, idiotic, useless, parasitic, mindless, greedy, disgusting, subhuman, verminous, fiscally filthy, margin-masturbating, necrophiliac, worthless, sylphitic, irrational, insane, unhygienic, illiterate, uneducated, incompetent, disease-spreading, repulsive, deformed, venal, sub-rodent rectum, fecally inadequate, perverted, pecuniary-pedophiliac, economy-murdering, job-destroying, society-wrecking, quality of life destroying, trash.

…To coin a phrase…

It’s about patching the multi trillion dollar hole in the large paper canoe that America is paddling. That’s the big deal. It's not just the housing industry in trouble, it's the financial underpinning of the US economy.

Archimedes was right about liquidity. It tends to displace things, very effectively, including millions of Americans, clear out of their homes, jobs and and futures.

The New York Times

The legislation is the latest in a series of extraordinary interventions this year by the Bush administration, Congress and the Federal Reserve as they seek to limit shockwaves in the housing sector from rippling across the American economy and the world financial system. In the process, the central bank and taxpayers have taken on what critics warn are incalculable liabilities and risk.

The bill grants the Treasury Department broad authority to safeguard the nation’s two mortgage finance giants, Fannie Mae and Freddie Mac, potentially by spending tens of billions of dollars in federal money to prevent the collapse of the companies, which own or guarantee nearly half of the nation’s $12 trillion in mortgages.

To accommodate the rescue plan for the mortgage companies, the bill raises the national debt ceiling to $10.6 trillion, an increase of $800 billion and the first time that the limit on the government’s credit card has grown to 14 digits.

This is what the credit crisis is about. A very large hole in America’s heart. The alternative is to allow crashes, and hope the system can survive. That would be extremely risky, and impossible to control if major crashes snowballed.

The bill includes some unspecified superglue in the form of Treasury authority to spend to fix the torn arteries:

... Analysts, including the Congressional Budget Office, expect less than $100 billion of that authority to be used. The risk to taxpayers is minimal, analysts say, given higher insurance fees that will be charged to recipients of the refinanced loans.

And yet, even that $100 billion could seem small compared with the Treasury Department’s authority to spend unspecified amounts of tax dollars to rescue Fannie Mae and Freddie Mac if they are in peril of collapse.

Treasury Secretary Henry M. Paulson Jr., an architect of the rescue plan, said he expected never to use the new authority. And the Congressional Budget Office predicted that any bailout between now and Dec. 31, 2009, when the authority sunsets, would most likely cost $25 billion or less, and that there was a better-than-even chance of no cost at all.

To be fair to Congressional critics, there’s some definite lack of naiveté in their reservations about the package. The most obvious is the concern that having bankrolled this situation, people will take advantage of it. Given the dazzling standard of administration of the Iraq contracts, that's not a totally unfounded bit of skepticism.

“This bill has moral hazard written all over it,” Representative Jeff Flake, Republican of Arizona, said during the debate in the House on Wednesday. “We are pretending to chain a monster here, and we are, instead, letting that monster loose.”

Senator Charles E. Grassley, Republican of Iowa, voted against the bill even though he had worked on many of its tax provisions. “This bill has fallen prey to the special interests on Wall Street and K Street at an unjustifiable expense to taxpayers and homeowners on Main Street,” he said in a statement.

The legislation, which is 694 pages of pure fun and frolics, has a definite look of being a very large overhaul of existing legislation, and some new backup mechanisms for institutional failures.

Fannie and Freddie have scored a new independent regulator, too. That’s an administrative measure which has more than a few hallmarks of someone watching the till.

The earmark approach apparently hasn’t gone away, either. There are quite a few local provisions, including one which is believed to relate to Chrysler.

The choice was to try and walk on water, or get a life boat.

Let’s hope the life boat doesn’t spring any leaks.