Wednesday, September 17, 2008

Economic Stuff

As I slowly lose my mind without electricity or access to a blow dryer or the ability to make a good pasta dish, I thought I would just share some good points here and I'm hearing on my battery operated radio. (Stocking up on wine for the hurricane was my best idea by far)

From NRO:

Both Joe Biden and Sarah Palin were asked whether or not they were in favor of the AIG bailout today. Now as Ramesh noted, Biden's decision to blame tax cuts for the wealthy for the AIG bailout is frankly idiotic. But also profoundly troubling is that nowhere in the statement does Biden evince any knowledge of what AIG does or why it was important to be bailed out — and his ignorance goes a long way toward explaining why he's against a bailout that is pretty obviously necessary to prevent a potential worldwide financial crises. (Meanwhile, Obama issued a statement that makes it impossible to discern whether he's for or against the bailout, and said statement even gets AIG's name wrong.)

Now here's Palin's statement today on AIG:

“Dissapointed that taxpayers are called upon to bailout another one,” she said. “Certainly AIG though with the construction bonds that they’re holding and with the insurance that they are holding very, very impactful to Americans so you know the shot that has been called by the Feds its understandable but very, very disappointing that taxpayers are called upon for another one.”

That is exactly right. It's terrible that the bailout is occurring but Palin indicates that she understands why letting the world's largest insurer go down would be a very bad shock to the financial system. AIG underwrites a massive amount of credit default swaps — which are very similar to insurance contracts for debt instruments. While I wouldn't say AIG couldn't have done anything to avoid their predicament, in some important respects, AIG's financial burdens were not created through their own mismanagement so much as being left holding the bag on these contracts after the failings of its customers. Thus the AIG bailout is more about maintaining liquidity — refusing to bailout AIG would not be about addressing moral hazard in the way it would be if the Fed were dealing with an investment bank insolvency.

The bottom line is that Gov. Palin gets it, and veteran Senator Biden is embarrassingly clueless.

That's my girl.

And...McCain was right on fannie and freddie:

McCain Did Anticipate Problems with Fannie and Freddie [Mark Hemingway]
ABC's Jake Tapper:

"Two years ago, I warned that the oversight of Fannie and Freddie was terrible, that we were facing a crisis because of it, or certainly serious problems," Sen. John McCain, R-Ariz., told CBS this morning. "The influence that Fannie and Freddie had in the inside the Beltway, old boy network, which led to this kind of corruption is unacceptable and I warned about it a couple of years ago.”How does this claim of foresight square with this interview that McCain gave to the Keene (NH) Sentinel, discussing the subprime mortgage crisis, in December 2007?
Tapper goes on to quote McCain saying of the broader subprime/liquidity crises that occurred at in the last few months of 2007, "So, I’d like to tell you that I did anticipate it, but I have to give you straight talk, I did not."

A couple points — in the quote above McCain is clearly referring to Fannie and Freddie explicitly. While they're arguably the lynchpin of the current financial crises, anticipating problems with Fannie and Freddie is hardly the same as foreseeing the overall extent subprime crises.

And if Tapper googled a little harder he would see that McCain's not making a "claim" — he really did anticpate the problems with GSEs and see them as a systemic financial problem. He even sponsored legislation to deal with it:

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

McCain deserves credit for being on the right side of this. Meanwhile, Obama in just four years in the Senate raked more contributions from Fannie and Freddie than any other Senator in the last 19 years — save Dodd. McCain should pummel Obama with this. He's right on Fannie/Freddie where Obama has done nothing but take their money look the other way.