Fannie and Freddie: The Sequel

By Mac McKerral
09/22/08
8 comments

About my previous missive on the government bailout of private companies, a reader wrote this: “Who authorized the ‘government’ to bail out these companies? (Was it) even debated in Congress? The millions of Americans who have lost their homes or are in danger of losing their homes would surely have a different opinion about what those blank checks should be used for.”

The question isn’t just a fair one. It’s a critical one.

Throughout the weekend and as you read this, key members of Congress continued work on a bill that would authorize the U.S. government to take over approximately $700 billion to $800 billion in bad debt created by banks and lending institutions.

President George W. Bush told reporters last week that he does not know the ultimate cost to taxpayers but Bush said that he believes the taxpayers would get “most of it” back some time.

Media reports state that the plan would require Congress to authorize increasing the cap for the U.S. national debt to nearly $12 trillion from its approximately $10-trillion cap now, debt that already costs the U.S some $500 billion in interest each year.

An Associated Press report on the proposed bill to authorize this massive take over of private-company debt stands at about three pages, pretty thin when it comes to federal law. Reports say that what the draft does not contain is two provisions:

A requirement that the financial institutions pay back the government for the loan.
A provision that would include money for strapped homeowners facing defaults on mortgages.

How did all this chaos ensue?

Most experts — even those free-market, no government-regulation defenders — point to a fairly consistent pattern of deregulation starting back in the Carter administration.

Both Democrats and republicans have been “party” to that pattern.

As I wrote earlier, it seems this country’s leaders learned little from the savings and loan debacle of the early 1990s.

But that’s history and this is now.

And every American can claim a stake in the economic future of this country. So get online and learn as much as you can and quickly about what taxpayers face in the days ahead. Then use these e-mail addresses of your representatives in Congress.

Tell them exactly how you feel — and how going forward you plan to vote based on those feelings.

Resources:

Bailout FAQ: www.businessweek.com/election/2008/blog…

And guess what the proposed bill does contain: Section 8 would give broad and unchecked authority to the U.S. Treasury secretary.

It states: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

If Congress were to pass the bill with this stipulation, it will have given up its constitutional role as the minder of the country’s money.

Read Mac Mckerral’s related blog AIF, Fannie, Freddie, free markets and frustration

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Filed Under: stock market, mortgage lending, government bailout, Freddie Mac, Fannie Mae, AIG

8 comments so far. Add a Comment

7 weeks ago an anonymous user commented:

It appears that many citizens contacted their representatives, expressing concern about the 700-billion-dollar bailout. With the defeat of the proposed bailout, the U.S. stock market plunged, the global market did likewise, and the U.S. taxpayer is no closer to economic recovery than the government is. Financial institutions must bear the brunt of this fiasco—the corporate CEOs should be forced to give their million-dollar bonuses back to the people.

7 weeks ago mmckerral commented:

Thanks for your post. It seems a lot of folks told their congressional reps that the free market got us into the mess and the free market can get us out. You may have seen that a massive financial institution, Wachovia Corp., was on the ropes. Under the bailout, the taxpayers would have taken on the company’s bad debt. But lo and behold, when the bailout went south, a private company took over Wachovia. Citibank is taking on Wachovia’s $42 billion in bad debt. The free market worked. But it will not when the government intervenes to prop up badly run companies with taxpayer money. Note: Citibank stepped up when the bailout died.
Mac McKerral

8 weeks ago an anonymous user commented:

While I certainly agree with most of the comments here, I find it interesting that so many are outraged over a $700 billion bailout of financial institutions, when year after year we’ve spent tens of billions of taxpayer dollars on each social welfare program like Medicare and Medicaid, not to mention our staggering Social Security expense and Iraq war and national defense spend. Where is the public outrage over these expenditures? The modern media and government-run education systems have convinced the American people that industry is evil and government is good. Wall Street criminals come to them looking for a hand-out just like all the entitlement burglars and they get slapped in the face. And the people wonder why American businesses are moving to China.

7 weeks ago mmckerral commented:

Thanks for the post. No question, it takes a lot to get Americans involved in their government and to actively participate in making sure elected officials do what’s best for the public. Maybe this will mark a turning point, a renaisance with regard to civic engagement. Hope springs eternal. Why not? The Cubs are in the playoffs. Mac McKerral

8 weeks ago an anonymous user commented:

President Bush’s televised talk to the nation last night gave me chills. Not from the obvious scare tactics he used to frighten Americans into believing that without the $700-billion bailout we won’t ever be able to buy a new car, pay our mortgages, send our children to college, or retire. No chills from his statement that the financial problems began “10 years ago,” meaning—it started under Bill Clinton’s watch, not his. No chills from his acknowledgment that this week it’s a financial crisis, when only weeks ago he said the economy was strong. No, the chills came when Bush said that he had every confidence in Treasury Secretary “Hank” Paulson. That’s when the chill set in. The President doesn’t understand that, as written, the proposed $700-BILLION bailout for financial institutions will put “Hank” Paulson in command, with no oversight. Even hours after Bush’s speech, the chill hasn’t left me.

8 weeks ago mmckerral commented:

Hello: Your analysis of the “tactical” and “partisan” elements in the speech the president gave is right on target. I would add one observation. At the outset, when he began explaining how all this happened, he started that thread with hinting that “foreign investors” started the whole mess. Congress has bowed up thus far. They need to remain vigilant. Mac McKerral

8 weeks ago an anonymous user commented:

I’m appalled that the Bush administration, once again, is prepared to sacrifice its citizens, not to bullets and bombs this time, but to billions in deficits and a deeper economic depression. The proposed bail out will hurt taxpayers, except, of course, the top 10% of the country’s wealthy elite and those with a connection to Treasury Secretary Henry Paulson, who headed the Goldman Sachs & Co. from 1999-2006, before joining the Bush administration. Goldman Sachs will now benefit under the proposed bail out as an investment bank. Write and call your Congressional representatives today. If you don’t, you’re facing a billion-dollar boondoggle.

8 weeks ago mmckerral commented:

Excellent observations! I think if anyone watched the Senate Banking and Finance Committee hearings on C-SPAN Sept. 23, he or she would be fascinated and pleased by the way senators questioned Paulson about this vague and dnagerous plan. The senators restored a bit (albeit a small bit) of my faith in our elected representatives. On the other side of the fence was Paulson, who responded to very direct questions with rambling doubletalk laced with fear tactics and promises to fis the broken parts of this plan “later.” Meanwhile, his mantra was “Give me the money and power now.” One senator specifically asked him about the issue of conflicts of interest. So, your observation about Paulson’s previous job with Goldman is spot on. Paulson rambled on this question, too. I agree with your call to action. Let’s keep the heat on our reps! Mac McKerral