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« If you believe man is causing global warming, what do you do as China, India and Bangladesh keep adding CO2? | Main | Jeffrey Goldberg endorses Hamas »

September 29, 2008


Christopher Taylor

I don't know enough to say one way or another, but inaction may not be bad. The free market is self-adjusting and there's good reason to believe that FDR's attempted fixes (read: massive injection of socialism into US law) prolonged, rather than helped with the depression. Ten years, for crying out loud.

Frank Warner

I know what you're saying there. But temporarily propping up the banks was one good idea of the New Deal.

The many other longterm programs can be debated. If I recall correctly, the Dow Jones didn't return to its pre-1929-crash level until 1959. That's a long time to wait for stock value to return.

Christopher Taylor

I don't know if this is necessarily the right move. If you love liberty, shouldn't you fear the government's takeover of this much of the financial business of America? Every time the government gains power, we lose liberty, Frank. That's something we should all be nervous about, at least.

Maybe economic tough times are a small price to pay for liberty? Certainly better women and men than I in the past have paid a far dearer price.

jj mollo

The free market is necessary and useful, but far short of ideal. It will cure a lot of ailments in the long run, but as Keynes himself said, in the long run we're all dead. I'm not sure we can afford to wait for the market cure, and I'm not sure we'd like the result. The market has to be guided. The vagaries of the market are too dangerous for mere humans.

One big problem with free markets is hidden collusion by big players. A lot of this can be prevented by competent and disinterested regulation. The present administration, however, has spent the last 7 years preventing any such thing from happening, which is why McCain is baying at the wrong moon when he attacks the SEC.

Sometimes, in spite of a laissez faire government, the market gets its revenge on the colluders. Take the gratifying case of Bunky Hunt and his brother.

Frank Warner

JJ, the Bush administration has not spent the last seven years avoiding competent regulation of Fannie Mae and Freddie Mac.

As a Sept. 11, 2003, article in The New York Times reports:

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken....


Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.

* * *
jj mollo

And when did the Democrats gain such a powerful hold over Congress? Barney Frank had little influence at the time, and his argument has some merit. We needed some real leadership on the issue and some bipartisan trust-building.

You cite a good example of stupidity in hindsight, but the Republicans have been consistently ideologically opposed to regulation in all its forms since Goldwater. The Delay/Gingrich Congress was certainly not taking a whole lot of advice from Democrats and was not immune to the persuasions of big contributions. Regulation is hard to do. Republicans have taken the easy way out and chosen the position that regulation is intrinsically wrong and therefore they don't have to do it.

McCain has been consistently in favor of bipartisanship and of reducing the influence of lobbyists, which is why the rest of the GOP hates him. He was ideologically opposed to regulation, but at least he was willing to talk with Democrats, a lapse for which other Republicans are unlikely to forgive him.

Frank Warner

Republicans are knee-jerk against regulation of the private sector, but they haven't been against regulating and better oversight of Fannie Mae and Freddie Mac, which they seem to see as quasi-governmental.

Barney Frank had lots of power over this legislation, and he stalled it and killed it in 2003. Keep in mind the Democrats also killed Social Security reform in 2005.

Back in 2002, Frank hinted that he knew Fannie Mae was too much on its own, and for half a day, Fannie Mae was all shook up. By the end of the day, Frank issued a statement taking back his doubts, and Fannie Mae went back to doing its nearly unregulated subprime business.

Finally, after the loans were going bad, Barney Frank last year put his name on legislation to rein in Fannie Mae and Freddie Mac. Too late.

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