Wednesday, September 17, 2008
You took the ride, now take the slide
Peel away the layers of the current economic onion. Deep in the center of this Wall Street bailout you find the foul stench of Fannie Mae and Freddie Mac. These two entities, which are controlled and protected by the U.S. Congress, are almost the sole cause of the collapse of Merrill-Lynch, Bear Sterns, AIG and the additional dominoes that will fall in the near term. These two former government agencies permitted to operate like private companies on taxpayer money peddled the dream of home ownership like a heroin dealer to people who lacked the means to pay for the long term. But like a typical government bureaucracy they were not forced to be responsible for their poor decisions. Through the miraculous procedure of federal regulation they were permitted to sell these poor-quality mortgages in bundles to investors flush with cash from the demand for savings and planning financial instruments like IRA's, Keogh's and pension funds. And naturally since Fannie and Freddie were government backed buyers knew in advance that when, not if, it went bad the government would have to come to rescue or be exposed as the culprit. It is well known that every effort to reform Fannie and Freddie was stymied by the Congress. It is also well known that Fannie and Freddie were political repositories for the loyal allies of Presidents, Representatives and Senators. One of its latest members, Franklin Raines, a former Bill Clinton budget director, was paid almost $90 million over six years. He is a major economic policy advisor to Barack Obama, who was second only to Chris Dodd of Connecticut, in political contributions from Fannie and Freddie. I think that if most Americans knew the complete story of Fannie and Freddie they would be truly outraged. The behavior of our Congress is far worse than any of the offenses for which they assail Wall Street. Their attempt to regulate the stock and bond market, as well as the banking and mortgage markets demonstrates the same heavy-handedness as their attempts to control the behavior of American citizens through the tax code. Don't be fooled by the diatribes of the political class. The current crisis falls directly at the feet of Congress. Hold them to account when its your turn to pull the lever. The action, or lack thereof, that has caused the value of your house to slide is the responsibility of the U.S. Congress, its support of Fannie and Freddie and its failure to be good stewards of taxpayer money. The $200 billion for Fannie and Freddie, the $85 billion for AIG is chump change compared to the $3 trillion of your money they spend every year. To quote Hilary Clinton, "it's time to wake up and smell the coffee."