[QUOTE]Monday, September 8, 2008
UPDATED: The Not Ready for Primetime Player
How cute..."Her First Gaffe." And someone even had the videocamera rolling:
Gov. Sarah Palin made her first potentially major gaffe during her time on the national scene while discussing the developments of the perilous housing market this past weekend.
[B]Speaking before voters in Colorado Springs, the Republican vice presidential nominee claimed that lending giants Fannie Mae and Freddie Mac had "gotten too big and too expensive to the taxpayers." The companies, as McClatchy reported, "aren't taxpayer funded but operate as private companies. The takeover may result in a taxpayer bailout during reorganization."[/B]
Economists and analysts pounced on the misstatement, which came before the government had spent funds baling the two entities out, saying it demonstrated a lack of understanding about one of the key economic issues likely to face the next administration.
"You would like to think that someone who is going to be vice president and conceivable president would know what Fannie and Freddie do," said Dean Baker, co-director of the Center for Economic and Policy Research. "These are huge institutions and they are absolutely central to our country's mortgage debt. To not have a clue what they do doesn't speak well for her, I'd say."
Yes, I did say earlier today that stories like this will backfire -- but I didn't say I would stop linking to them. Remember Jimmy Stewart: A lost cause is the only cause worth fighting for, especially when it's the truth.
UPDATE: Ed Rendell, who knows a thing or two about state troopers, most of it learned at 110 mph, ripped into Palin over "Troopergate" today:
"She [claims to be] a reformer," said the Pennsylvania Democrat. "And yet she is being investigated on the charge that she used her power as governor to fire someone who was going through a messy divorce with a relative of hers. Could you imagine if I was doing the same thing in Pennsylvania? You would be calling for my impeachment."[/QUOTE]
[I]"Given their history of innovation in mortgage-backed securities, why do Fannie and Freddie now generate such substantial concern? The unease relates mainly to the scale and growth of the mortgage-related asset portfolios held on their balance sheets. That growth has been facilitated, as least in part, by a perceived special advantage of these institutions that keeps normal market restraints from being fully effective.
[B]The GSEs' special advantage arises because, despite the explicit statement on the prospectus to GSE debentures that they are not backed by the full faith and credit of the U.S. government, most investors have apparently concluded that during a crisis the federal government will prevent the GSEs from defaulting on their debt.[/B] An implicit guarantee is thus created not by the Congress but by the willingness of investors to accept a lower rate of interest on GSE debt than they would otherwise require in the absence of federal sponsorship.
Because Fannie and Freddie can borrow at a subsidized rate, they have been able to pay higher prices to originators for their mortgages than can potential competitors and to gradually but inexorably take over the market for conforming mortgages. This process has provided Fannie and Freddie with a powerful vehicle and incentive for achieving extremely rapid growth of their balance sheets. The resultant scale gives Fannie and Freddie additional advantages that potential private-sector competitors cannot overcome. [B]Importantly, the scale itself has reinforced investors' perceptions that, in the event of a crisis involving Fannie and Freddie, policymakers would have little alternative than to have the taxpayers explicitly stand behind the GSE debt. This view is widespread in the marketplace despite the privatization of Fannie and Freddie and their control by private shareholders, because these institutions continue to have government missions, a line of credit with the Treasury, and other government benefits, which confer upon them a special status in the eyes of many investors.[/B]" [/I]
Fannie's Privitisation was an illusion, and Feddie's creation to balance her, sorcery, a mirage intended to imply market competition. In reality it was as a whole, a structured vehicle to subsume the mortagage securitization market, which basically by magic wiped the risk for investors in the American home-owner away by securitizing many mortgages into MBS's.
Oh, but when the same contagion of fiscal irresponsibility began to undermine the structure of the economy, all of that deferred risk and debt was, and now is placed squarely in the laps of the entire tax paying base.
Fannie and Freddie were designed to become "too big to fail". And now that failure is an option, they are "too big" to. Hence, the government steps in and makes good on the merely implied but otherwise utterly obvious FACT that these "Private" enterprises were only "Private" insofar as they could subsidize themselves, and maybe crack into the black.
But now we see through the illusion. These GBE's - "Government-Backed-Enterprises" - as they are called - were never meant to assume their own risk.
It was always implied that the taxpayer, er, the Federal Government, would be assuming the debt if they went down.
So explain to me how Palin's comment that they are "getting too expensive for taxpayers" jibes with that?
The guy she is running with (and, to be fair, the guy he is running against) has endorsed a $200 billion bailout of these private companies. Does Palin think the plan endorsed by McCain overpaid?
Perhaps what she meant is that the risk of doing nothing could make them more expensive down the road, but that's not what she said and, the way it was phrased, its hard to get there.
I expected her gaffes to come on foreign policy, but apparently 1.5 years as governor of a small-population state has not prepared her to talk confidently about the most significant government intervention into private enterprise in memory.