a) makes it clear that Fannie's involvment in the subprime market comes not from repackaging subprime loans as securities but from buying those securities after they'd been repackaged by others (which still helped fuel the subprime lending crisis, pace Krugman):
The main mission of Fannie and Freddie is to provide liquidity into the mortgage markets by purchasing loans made by local lenders and repackaging them into bond-market security pools that are sold to investors with the U.S. government's stamp of approval. You might call this the good-cop function.
But then there's the bad-cop function: Fannie and Freddie purchased some of these mortgage pools for their own portfolios, essentially setting up a high-risk internal hedge fund. It was the sinking credit quality of this hedge fund that drove last week's shareholder run. Think sub-prime mortgages and other shaky and exotic loans.
b) suggests, startlingly, that the government has agreed to back only Fannie's "good cop" function, not the bad-cop securities purchases that are the source of Fannie's financial troubles;
c) hints that left and right are converging on the desirability of de-privatizing Fannie and Freddie, at least temporarily. When even an AEI expert calls for talking profit-making shareholder owned organizations and "making them tightly controlled government agencies," maybe they should be made tightly controlled government agencies! Letting Jim Johnson politico types build profit-making empires with taxpayer-supported credit is just too risky. (For how Johnson operated, see this 2006 WaPo piece [via NewsAlert].)
P.S.: When toting up the costs and benefits of Fannie Mae, shouldn't Slate's Daniel Gross have taken into account the cost of dragging down the whole economy in a subprime crisis which Fannie and Freddy helped fuel maybe not as a primary but as an important secondary factor? Just asking! .... I smell Kool Aid! ... 2:58 P.M. link
Tuesday, July 15, 2008
Chart of the Day: What happened to the number of people on public assistance in New York City after the 1996 welfare reform. ... 2:52 A.M.
Embedded Error: Here's NPR's Mara Liasson, covering the candidates' appearance before Last Week's Latino Group:
Both these candidates are for the same thing: a path to citizenship--that doesn't reward people who come in illegally--but McCain did change his emphasis ...
Liasson is being very careful not to overemphasize or underemphasize the difference between the candidates. She doesn't exhibit any tilt toward Obama or toward McCain. It's all exquisitely fair--except that she almost unconsciously embeds a bit of ludicrous BS that is common to both candidates: the idea that their legalization plans wouldn't "reward people who come in illegally."
Of course they would. When you hear the candidates talk about sending illegals to the "back of the line," remember that there are two lines: 1) An initial, typically very long line in which foreigners patiently wait years, sometimes decades, to get green cards or other documents that enable them to live and work here legally, and 2) a shorter second line of people who have green cards and want to become citizens. Neither Obama nor McCain would send illegals to the back of the first line--that would, in many cases, be tantamount to deporting them. On the contrary, the illegals who are already here get to pay a not-huge fine and skip Queue #1 entirely. They may go to the back of Queue #2, but that's a queue they can wait out while working legally in the richest country on Earth--a reward the poor suckers who obeyed the law and are still lining up outside U.S. consulates abroad don't get. ...