Article Image

McCain/Palin: Fannie/Freddie Fallacy Farm

Written by Subject: Economy - Economics USA

Wall Street Journal readers were treated to this joint op-ed this week:

The bailout of Fannie Mae and Freddie Mac is another outrageous, but sadly necessary, step for these two institutions. Given the long-term mismanagement and flawed structure of these two companies, this was the only short-term alternative for ensuring that hard-working Americans have access to affordable mortgages during this difficult economic period.

In a week filled with appeals to pragmatism and realism, it's not surprising that TINA would show up in the opening paragraph of McCain/Palin “thoughts on the economy”. TINA – there is no alternative – is as intellectually weak as arguments come.

TINA is defeated with a single statement proving alternatives exist. “Let interest rates do what they will while housing prices fall and hard-working Americans will get the same affordable mortgages without the moral hazard” defeats this particular TINA. $200k (30 yr fixed) at 6% is the same payment as $163k at 8%. The difference is, the taxpayer isn't on the hook for the alternative.

Of course, it's possible that the economically intelligent powerhouse that is McCain/Palin meant “we had no choice” rather than “there is no alternative”. This puts government actions in perspective: those of animals rather than humans. Rational humans always have choices, a little thing we call free will. Without free will, without choices, actions are animalistic.

More likely, McCain/Palin meant “we had no politically viable choice”. I'll buy that. That pretty much typifies everything that is wrong with politics, that is, we'll act in our own self-interest rather than any moral or ethical way. If this is, in fact, the words they dare not speak, the rest of their op-ed is meaningless.

Fixing Fannie and Freddie, and reforming our mortgage and financial markets, is critical to getting the housing market and the entire economy moving again. A great deal of the savings and wealth of American families is wrapped up in the value of their homes. A house has traditionally been the wealth-building course to retirement. The housing industry employs millions of Americans. One of us, John McCain, said over two years ago, "If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose."

There it is. McCain said it two years ago, but felt is was more politically viable to restrict political speech than have congress act on Fannie and Freddie. Say it again, Senator. Say it a million times. Fannie and Freddie are still apparently too big to fail.

So here's a question for the good Senator and Governor. Consider a scenario where Fannie and Freddie aren't “fixed”. Consider, for just a moment, that the fixes don't get the job done, and we find Fannie and Freddie right back in the same place three, four years from now. Per the rationale that you use to support the nationalization of these companies right now, they will have to be ... renationalized? Or, if not then, why now?

If nationalization (the McCain Plan, as they call it) is viable now, it is viable in the future. If it's not viable in the future, then it is not viable now. The moral hazard, then, hinges on the fixes.

One need look no further than the Left Coast to see the result of exactly the “fixes” enumerated by McCain/Palin. Regulation, transparency, and market reform have been a joke in California since the real estate market hit the skids in the early '90s. “Truth in lending” is anything but. Insanely high prices, lax lending standards, and, now, a massive revaluation are the norm in the area the McCain/Palin “fixes” have been most ardently pursued.

Real estate is not rocket surgery, but I'll bet the ranch that the lawyers and brokers will mate McCain/Palin in three moves. You can take that bet for less than four bits. Good luck!

Join us on our Social Networks:

 

Share this page with your friends on your favorite social network:

Stop Wars T-shirt at The Bitcoin Store