A lot is being written today about the proposed "bail-out" of Fannie Mae and Freddie Mac, the two Government Sponsored Enterprises (GSEs) which nearly collapsed last week.
Conservatives are screaming that there should be no bail-out, that the two should either fail or be fully "privatized."
This tells me something very important.
The bail-out should go ahead. But rather than just buying loans, it should be through an injection of equity.
While Fannie and Freddie helped to create the Big Shitpile by packaging loans and re-selling them to investors, the portfolio they actually hold isn’t that bad. They don’t hold ARMs. They don’t hold balloon notes. They hold fixed-rate loans, most under $500,000. You know, the good stuff.
As housing values fall some of these loans go "underwater," the equity being worth less than the loan value. Some default, others must be marked down in value. There are losses as this works out.
But the losses are not unlimited. This may be one of the best portfolios in the business. If you buy up the equity (diluting existing shareholders), it’s actually a good investment by the government. You and I will make money.
This is why conservatives are leading the charge this time. They don’t
want the government making a good deal. They only want government
making bad deals. This legitimizes their idea that the government can
only make bad deals. As they’ve forced the government to do throughout
this decade.
But government can make good deals. The Interstate Highway System was a
good deal. The original FHA and VA loan programs were great deals. The
Marshall Plan was a good deal. The original Reconstruction Finance
Corp. was making money before we started using it to finance World War
II. Apollo was a good deal.
The government can do right. Private industry can do wrong. Deal with
it.
Sure, if your government is run by people who have nothing but
contempt for government you’ll have contemptible government. But it
doesn’t have to be that way. You can have government run by people who
give a shit about someone other than themselves. You really can.
This is the lesson of our entire decade. There is nothing left of the
Republican Party or the conservative movement now but ideology,
ideology which seeks to prove itself right by destroying everything in
its path. When any ideology becomes this destructive society must
either destroy it or be destroyed by it.
Most voters understand this. That’s why the Republican brand is so
tarnished, and no amount of finagling by supposed smart guys is going
to change that. We know which card the pea is under, Newt.
Certainly not everything is going to go right with the next
Administration. There will be corruption. There will be mistakes. There
will be stupidity.
But not as much as we have now. And not for stupid reasons of ideology. Until the present Republican Party is discredited to the point of destruction we’ll be unable to have a proper discussion of any issue in this country — finance, war, health, anything.
And that’s sad to write because I started my political life as a conservative Republican.
