Tuesday, September 09, 2008

Dollars at risk and dollars spent 

Ed Morrissey notes this morning the attempt to hang a gaffe on Sarah Palin for saying Fannie and Freddie are too expensive. Apparently, according to her critics, it's a mistake to say money at risk is money spent. I noted in the post just below this that we knew taxpayer dollars were at risk in 2002, for example from this USAToday article from May of that year:

The companies have become so big, their failure could jeopardize the whole U.S. economy. According to the doomsday scenario, failure could drag down a U.S. banking system dependent on Fannie- and Freddie-issued bonds. Taxpayers would be on the hook for a bailout that would dwarf the savings and loan scandal.

It's a distinction without a difference. Just ask Robert Reich:

So who gets stuck with the tab? Investors in Fannie and Freddie have always believed that the loans issued by the two giants were guaranteed by the federal government but technically they aren't. The guarantee has always been assumed but has never been put into law explicitly, and the liabilities have never been carried on the federal books. Yes, the companies' charters give the Treasury the authority to buy as much as $2.25 billion in each of their securities in the event of possible default, and the two companies have access to the Fed's so-called Fedwire payments system allowing them to access funding if needed. But these won't keep the two afloat for long.
Perhaps her opponents would like to score a TGO (technical gaffe-out), but I would say this argument barely lays a glove. The dollars were committed many, many years ago, back in its 1960s when the government was put on the hook for this and later legislation which allowed Fan and Fred to take on investments that were never the intent of the original design. The argument being made is akin to saying your home only cost you dollars after you paid the mortgage, not when you signed for the loan.

UPDATE: Welcome HotAir readers! Also to note what both McCain & Palin are saying and what Obama has said yesterday morning:

Barack Obama objected to reports Monday that the ousted heads of mortgage giants Fannie Mae and Freddie Mac may receive lucrative severance packages and asked the Bush administration to ensure their "poor leadership" isn't rewarded.

"Under no circumstances should the executives of these institutions earn a windfall at a time when the U.S. Treasury has taken unprecedented steps to rescue these companies with taxpayer resources," Obama said in a letter to Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart. "I urge you immediately to clarify that the agreement with Fannie Mae and Freddie Mac voids any such inappropriate windfall payments to outgoing CEOs and senior management."

There is no significant difference in the views of the candidates on this issue, either in causation or in prescription.

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