Obama, McCain back Fannie-Freddie bailout; Palin calls them "too big"

Developments today in the government's weekend bailout of Freddie Mac and Fannie Mae:

The New York Times reports that "both presidential nominees expressed support for the government’s plans to take over the companies." John McCain, the Times reports, "considered it an unfortunate but necessary step," while Barack Obama said "not acting could place the housing market in further distress."

In the same article, the Times drops a bit of a bomb, reporting the plan to take over the two mortgage giants "came together hurriedly after advisers poring over the companies’ books for the Treasury Department concluded that Freddie’s accounting methods had overstated its capital cushion..."

Before you get too worked up over that headline, note this from Calculated Risk: "I'm skeptical of the accusation of accounting issues causing the deal to be rushed. Notice the phrase 'not necessarily in violation of accounting rules' - I doubt Freddie violated any accounting rules this time."

The Wall Street Journal reports the plan will be announced Sunday afternoon, that it won't necessarily involve an injection of government money up front, and that the companies will be put under (into?) conservatorship by their regulator. The Journal also quotes McCain's running mate, Alaska Gov. Sarah Palin:

Alaska Governor Sarah Palin, the Republican nominee for vice president, said during a rally Saturday afternoon in Colorado Springs, Colo., that Fannie and Freddie have "gotten too big and too expensive to the taxpayers." She added: "A McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help."

As I bloviated yesterday, I'm interested in hearing either candidate articulate a strategy for dealing with the credit crunch.  Waiting for the Bush administration's treasury secretary to take historic action, and then saying it's probably the right thing to do, is not a strategy.

--Peter Viles

Your thoughts? Comments? E-mail story tips to Peter Viles
Photo Credit: L.A. Times

Comments

[Zacksmom]

Michael Snyder,

So who created the matter that exploded during the "Big Bang?" Believing in Evolution takes much more faith than believing in God!

BTW, Obama is going to raise taxes so high for all of his programs that there will no longer be a middle class. Why even both working or being productive when 75% of our income could be going toward taxes to provide for those who find ways to get out of working. Yes, I know some people really need the programs, but there is a large proportion of able body people and no citizens who are fraudulently receiving numerous services while the standard of living for U.S. citizens continues to decline. Get ready for breadlines if Obama is in office. Mr. Freshman Senator has no experience and is like a Ken doll that Oprah toted out for her adoring fans to crown as the next Messiah. Please people stop drinking the Koolaid and wakeup to reality! The Liberal Left is just as corrupt as any Republican what's worse is they pretend to care about others while taxing our middleclass to death for their programs which only create a dependent class of uneducated Americans amd illegal immigrants who are loyal to them when it comes time to vote.

[Snacker]

This was ultimately inevitable.

Paulson is trying to prevent a complete collapse of our financial system. Without Freddie and Fannie, you won't be able to get a loan period. Which means the only people who will buy homes are those with cash.

This is a bailout depending on how you define it in the sense that we will be spending a huge amount of our budget to finance the losses of the housing market, which are substantial.

What this WON'T do - is 'save' the housing market. Prices will continue to drop until the fundamentals of income to price get back into balance.

By the way, I don't think it really matters that much who gets elected for our economy. The government really has a limited role in how the economy runs - it is more cyclical than anything. You have your periods of boom, then your bust period. It has been this way ever since we have had free markets because that is how our psychology is fixed.

Neither cutting taxes nor taxing the rich so that we can create larger governmental aid programs is going to save the housing market, nor the larger economy from recession. The Fed can't do much either in terms of cutting rates.

No, this housing and credit bubble is occurring because we as Americans simply consume too much and have forgotten how to save and it is going to bite us in the rear. This correction is inevitable before we get to the point where we can again be an economically growing country.

I personally do not believe in big government and don't believe that throwing billions of dollars at things will solve any problems. Government is already too big and inefficient. I admit Obama is a likeable and charismatic leader, but far too left for me and along with a democratic legislature we will be having too much unnecessary "government reforms". I can't see how this will be good for the economy.

[Michael Snyder]

Zacksmom,
I'm sorry you're saddled with a California education. In school systems where they actually teach what a scientific process is students are equipped with a set of tools for determining the validity of a concept; be it evolution or economics. My disgust with the shameless pandering to the religious extremest who've propagated the blatant oil grab in Iraq not withstanding. Based on that one action alone, George Bush and his cronies rank right up there with Idi Amin & Joseph Gerbil as the most prolific mass murderers of modern times.
Our Economy has been hijacked by foreign interest and our primary defense contractor (Halliburton) has it's headquarters in Dubai. There is not a single American earning less than a six digit income that is not struggling even as the top one percent get richer off of raiding stock based retirement funds to pay their severances after they've lost billions of investor dollars and you think I'm drinking kool-aid?
I'd suggest you turn off that AM radio and come out into the light of day. Your hero, George Jr. has taken us from the world's "super-power" to a third world debtor nation in eight short years. He's done his dead level best to destroy the Constitution and I do believe he wears a tiara to bed.
As to the economic policies that effect real estate (the purpose of this blog) George Jr. didn't have McCain's slobber wiped off his shirt before he signed off on Paulson's "authority" to squander yet another $200,000,000,000,000.00 in taxpayer liability so he could bail out the National Bank of Dubai.
I'd be worried about tax increases too. Our unborn grandchildren will still be paying for this administration's corruption long after we're gone.

[Michael Snyder]

Zacksmom,
For the record; almost without exception, scientist, physicist, and I myself find our faith in God validated by the concepts you have such difficulty grasping.

[Jason]

Um, I guess MY biggest concern is with Gov. Palin calling these companies "...too expensive for the taxpayers..."

I'm no economist, nor a VP candidate, but even I know that Fannie and Freddie have not cost the taxpayers one red cent (they are publicly traded corporations) -- well, that is, until now with another multi-billion dollar bailout in the bills due pile of Joe Q. Public.

Honestly, to not mention that oversight is alarming -- I have been a fan until now, but this does make one ownder whether Ms. Palin even has a clue on the basics that extend beyond talking points and/or stump speeches.

Jason

[Adrian]

Is anyone even noticing the fact that Palin has absolutely no idea how Fannie and Freddie work, or even what it is?! She states that they have "gotten too big and too expensive to the taxpayers", well, the amount of taxpayer money has been miniscule up until the point of actually having the government bail it out. She needs to have a little chat with her speech writer...

[Richard]

As it becomes more obvious that there is little significant difference between McBama and O'Cain, I hope people will consider their alternatives. There is really nothing to lose if either of these jokers wins.

www.BobBarr2008.com

[Tom]

I thought Fannie and Freddie were two more of her kids!

[W.C. Varones]

Professor Menzie Chinn has a problem with Palin's statement, but can't articulate what it is:

http://wcvarones.blogspot.com/2008/09/u-of-wisconsin-prof-menzie-chinn-i.html

[Les]

I imagine many detractors of Palin will be suprised she does well in interviews without prepared statements. She certainly did well with Maria in a recent Business Week article.

Now, where are all the liberated, working mothers who may have not suffered through special needs children, but have suffered through special needs husbands they had to jettison in order to do what was right for their children, and for their own sanity? They should have an immense amount of respect for this woman. If Palin was a liberal, the press would have knocked Obama out of the way, or stampeded right over the top of him to worship at her feet. Instead they regard her as a wart that should be removed from the body politic. Apparatchiks of the Government-media complex? No doubt, comrade.

[sepo]

I love the fact that no one brings up who is running Obama's economic plan....isn't it the Fannie and Freddie ceo's

Oh and didn't they and Lehman's give Obama 1/2 million dollars.

any obama young dumbuts have an answer to this.