The Bailout as Seen from Boston, Paris, Atlanta and Los Angeles

The fallout continues from Sarah Palin claiming she opposed that famous bridge to nowhere, and that new McCain-Palin ad – the Original Mavericks – where the claim is that “she stopped the bridge to nowhere.” She did, all by herself, bravely facing down the world?

 

That is just not so. See Josh Marshall at Talking Points Memo with Lying Sarah Watch, a careful analysis, summarized by Michael Crowley here:

 

Palin was for the bridge until she realized that Washington wasn’t going to foot enough of the bill. When it became clear Alaskans would have to pony up big-time (only after Congress killed the earmark, “stopping” the bridge in the sense most Americans must understand it) she turned against it.

 

Read Marshall for the excruciating details, and consider Crowley:

 

So the lesson here flies in the face of everything this episode is supposed to say about Palin. She only turned against this project when the United States Treasury came up short, when a measure of sanity was restored to the budget process in Washington.

 

Maybe the Obama camp should stop trying to get the media to call this a lie and start running ads explaining to middle-class taxpayers in Cuyahoga County that Palin wanted them to pick up more of the tab for that insane project, not less.

 

But no one much cares, or so the McCain campaign seems to believe. As Marshall also notes here, the absolute falsehood has now been debunked by everyone from Newsweek to the Associated Press to even the Wall Street Journal, of all sources – but she keeps saying it, several times a day, in her appearances with John McCain. Say it enough and it will become common, received wisdom – and if anyone questions it, you can always say the press is picking on her unfairly. There’s a lot of that going on already. All the questions are sexist – you wouldn’t ask a man such things, accusing him of lying – and it’s just not fair, or right, or decent, or whatever.

 

Oddly, she has made no solo appearances and has told the press, over their objections, that anything she says on the press plane or anywhere else, however causal and innocuous, is strictly off the record, unless she expressly says it is not, and will grant no interviews except for one with ABC’s Charlie Gibson, and will soon spend a week or two in Alaska and not be available at all. No one will be allowed to ask her about this.

 

You might think this stinks – we’d all like to know about the person who could well be the president one day, and, actuarially speaking, one day rather soon – but you’re being told you know enough already to decide whether you should or should not vote for the McCain-Palin ticket. And she will not put up with people picking on her. She says this is so, the McCain campaign says this is so, and that’s that.

 

That, of course, goes down well with the base – they have this thing about the liberal press, all New York Jews or something, out to stick it to the noble and long-suffering, and god-fearing, conservatives, what with their impertinent and clearly subversive questions. They love it when their new hero – or heroine with balls – tells them to stuff it. It’s that current view of how things should be – Muscular Christianity is back in vogue. Jesus never let anyone push him around, after all. He punched people who doubted him in the face, which while nowhere in the New Testament, ought to be in there somewhere.

 

So we have to let that go. She was the one who stopped the bridge to nowhere. She did that, when no one else would. Fine, let her have that one. What difference does it make? Politics is like that.

 

But she does have to talk about other things too, and when, on Sunday, September 7, the government put the two companies that guarantee more than half the home mortgages in the United States, Fannie Mae and Freddie Mac, into conservancy – effectively declaring them bankrupt and telling those that held their debts that the US Treasury would assure what they held was worth every penny on the books – she had to say something. This was a big deal – the largest bailout of a private company, in this case two twin companies, in history.

 

As covered here in The Joy of Not Knowing Things When No One Else Does Either – she really stepped into a pile of… well, you know, semi-solid nitrogenous fecal waste. She said that Fannie Mae and Freddie Mac had “gotten too big and too expensive to the taxpayers.”

 

What?

 

The economists howledFannie Mae and Freddie Mac had never cost the taxpayers anything. They were not government agencies; they were private for-profit companies, making money for their shareholders, until they went belly up. She had the basic facts wrong. The most they had to do with the government was to lobby congress for regulatory relief, so they could make more money. Hell, see thisMcCain’s confidant and adviser Charlie Black headed a lobbying firm that worked for Freddie Mac for several years, and his deputy campaign finance chairman Wayne Berman, a vice president of Ogilvy Worldwide, is a former Fannie Mae lobbyist. She should have chatted with them.

 

And she could be president. That’s amazing. You’re supposed to know what you’re talking about. That’s kind of basic.

 

Or maybe it isn’t. How the financial system works is a puzzle to most civilians. From Reuters, see Fannie and Freddie Bailout Frustrates US Voters:

 

The Bush administration’s bailout of U.S. mortgage giants Fannie Mae and Freddie Mac frustrated many voters who worried it would set a bad precedent and that well-paid executives would go scot-free.

 

“It reinforces my theory that if the world was run by retired waitresses, we’d all be in much better shape,” said Melissa Reddington, 46, an event planner in Philadelphia.

 

“Nobody would be able to go home at night until their sidework was done, their stations were prepped for the next day and their money came out right. If you did those three basic things, 90 percent of everything else falls into line.”

 

Okay – they see the former executives getting big severance packages after having screwed the pooch, but they too don’t get what is going on. And they see a possible bailout of the auto industry, to the tune of twenty-five to fifty billion dollars, being discussed. Where will this end?

 

All of it spooks them, and they feel left out:

 

In the run-up to the U.S. presidential and congressional elections on November 4, Reddington echoed the opinion of others across the country who said the takeover came about “because worried bankers were calling worried bankers” and not because Washington finally sensed the pain of regular borrowers.

 

That’s closer to what actually happened, actually.

 

But be that as it may, the issue is that a woman who could one day run everything doesn’t get any of it.

 

This may not bother Palin’s fans, but it bothered the friends of this site, who started firing emails this way. From a doctor near Boston, now retired:

 

I read the Globe first thing this morning, which had one small paragraph dedicated to her gaffe. Not much, considering its importance. I haven’t heard a peep on NPR about it. I don’t watch television much, so I don’t know if it was mentioned there or not.

 

The reply from here in Hollywood:

 

The Globe…. That this doesn’t get more coverage might have something to do with reporters not knowing she’s wrong – they are not, generally, that sharp on the facts, as they cover gossip and may not get it – or with their editors, worried that simple-minded readers will flee if they present anything complicated. Either they didn’t get it, or thought their readers wouldn’t get it.

The press is like that. There’s a reason it’s call the Popular Press.

 

But she then said she’d been on a bit of an obsessive letter-writing roll, and fired off this one to the Boston Globe, in response to their article that barely mentioned the problem. 

 

It contains a good metaphor. The Globe did print it. Maybe they were not a bit frightened of getting into discussion of the true nature of Government Sponsored Entities – GSE’s like Fannie Mae and Freddie Mac, private companies the government created and may or may not assist in bad times. It’s complicated. That could drive down readership. Keeping it simple keeps circulation from tanking.

 

But then there was Our Man in Paris, Ric Erickson, editor of MetropoleParis and sometimes a contributor here, puzzling over parts of the previous column on this matter:

 

Kevin Drum – “On artistic merit, however, the judges have to score this one for Palin. Nobody cares about the minutiae of how GSEs work, after all, and liberal attacks on this score are almost certain to backfire because (a) we’re obviously harassing her unfairly over trivia…”

 

The television news in France said the government bail-out of Fannie and Freddie will amount to 200 BILLION dollars, and will have the effect of NATIONALIZING the two. They added that $200 billion is a LOT of taxpayer money. (Excuse caps!)

 

Robert Kuttner – “In the past several days, before the U.S. Treasury Department acted to seize Fannie Mae and Freddie Mac, several people asked me if I thought it was a good idea for the government to ‘nationalize’ the two mortgage giants. Fannie Mae, nee the Federal National Mortgage Association, (FNMA) began life as a government invention. It was born ‘nationalized’ – and it worked beautifully until it was privatized.”

 

Maybe those mortgage companies should pay back the excess profits they made before this whole ball of warm wax started to melt. Let folks move back into their houses; get them out of tents. Remember who set the terms of their borrowing, the lenders. Which is better – sky-high interest rates that cause defaults, or the lower come-on rates that folks could afford? In all of this it’s also useful to remember that the vast majority of borrowers weren’t ever into the sub-prime loans – they are still paying and still sleeping in their houses. If they can afford gas I assume they’re still paying.

 

Let’s face it – capitalists are as greedy as anyone. Too much greed upsets the balance.

 

Rick, the News Guy in Atlanta (he was part of the team that founded CNN), fired off this:

 

Will this have us nationalizing the two?

 

I like Krugman’s way of saying it’s not really “nationalization” (since it was created by Congress in the first place) but merely “deprivatization” — although since I keep hearing that this is supposed to be temporary, I expect we might later hear talk either of “reprivatization,” or maybe even “denationalization.”

 

But I also understand that the taxpayers will only get hit with a bill of whatever size (nobody here seems to want to guess how big) if guarantee chits are called in, which might or might not ever happen.

 

But I do hope the television news in France isn’t portraying massive tent cities over here. That’s not happening.

 

Paris:

 

Well, where are they living then? The television news here showed folks in front of their former homes with the front lawns covered in frigos, TVs and odd furniture, stuff they probably bought on credit. Don’t tell me they’re living in their former front yards. All those foreclosures; those people had to go somewhere.

 

Atlanta:

 

All that stuff ends up in the yard when they move out or are evicted, until they get their brother-in-law to come by with the truck. But where do they go from there? Good question. Not into any tent cities, not that I can tell. Back into apartments, I suppose, or they move back to their folks’ “empty nests” maybe.

 

But when you say “mortgage companies,” I assume you mean Fannie and Freddie, paying back excess profits? The problem being, if they had excess profits, they wouldn’t have been taken over. If there’s any money that would be paid out, it would come from me and you. (Well, okay, not actually you.)

 

Paris:

 

I mean the excess profits they were so happy to collect in 2004, 2005 and 2006. Remember those? Remember the bonuses they gave each other? What happened to all that? Don’t tell me they put it all back in.

 

Atlanta:

 

Whatever their profits, as I understand it, those were dispensed over the years in dividends to stockholders, mostly to “preferred” stocks held by China and banks all over the world. All gone now.

 

These profits would not necessarily have been “excess” in the sense of being filched from homeowners, I don’t think, since these two firms only aggregated mortgages into larger bundles. I’m not sure what bonuses there were – I’ve not personally heard stories about Fanny and Freddy bonuses – but I think some only came in the form of “golden parachutes,” which only were deployed this past weekend when some of the top people were cut loose.

 

I’m not trying to defend what passed for business practices by these people, I’m just saying these two “companies” were launched by Congress in the sixties to help “guarantee” loans and encourage home ownership among folks who otherwise couldn’t afford it, and they themselves ended up holding too much of the same kind of bad paper that those other banks held, then got dragged down in the same way the other banks did, leaving no money left behind to make things right.

 

If we, the people, want to insist on sucking that restitution money out of Fannie and Freddie, it’ll end up coming out of our own pockets – since “they” are now “us” – and won’t end up solving the problem but only making it worse.

 

And also from Atlanta:

 

Hollywood, I find, is almost always a good source for explanations of things such as this, and at least two movies come to my mind. (Note: the following quotes are actually paraphrased):

 

(a) In one version of Elaine May’s “A New Leaf” (there were several different cuts, I hear), millionaire heir Walter Matthau is informed by his accountant that he has run out of money. “Well, why don’t you just take money from my bank account?” “That’s the problem! Your bank account is empty!” Thinking for a minute, he reaches for his checkbook and says, “Okay, then, I’ll just write them a check!”

 

(b) In “Baby Boom,” Diane Keaton, who has moved into a house out in the country, discovers there is no water coming out of her taps, so she calls someone who comes out and looks around, then informs her that her well has run dry. Searching desperately for a common sense solution, she turns to the man and asks, “Can’t we just fill the well up with the garden hose?”

 

(c) Scenes we’d like to see, but unfortunately won’t, since her new handlers will make sure such things don’t happen: Sarah Palin is finally confident enough to call a press conference, in which she takes a question about what she would do about the Fannie-Freddy mess. “Simple enough! I’ll just send someone outside to take pictures of them,” she will say. “Then I’ll put them on eBay!”

 

Paris:

 

She’s going to auction off the folks that were foreclosed?

 

Atlanta:

 

I wouldn’t put it past her for a minute. But in her defense, of course, she can always claim to be an ignoramus, and without that hurting her one iota with the Republican base. In fact, most of them can identify with her on that score.

 

But some minor points, after reading Kuttner on the history of all thisFannie Mae dates from the thirties, created by FDR as a government agency to assure liquidity in the housing markets. Buy mortgages from banks so they would have the money paid to them for those to make more new home loans – that was the idea. You replenish the funds available.

 

The mortgages that were purchased by Fannie Mae were then bundled and resold as investments – but those used to be government bonds. And the money from their sale was pumped back into the banks to make more home loans, with the provision some of the new loans would go to low income folks.

 

Some wise-ass in 1968 decided Fannie Mae should be privatized, and it was. It became a government-sponsored but for-profit company. It was part of the same push that made the Post Office and Amtrak like that – private companies that had to sell shares and make money for their shareholders. The idea was that companies that have to make money are always more efficient than any government agencies. That’s still a matter of faith for most Americans, in spite of the evidence that it just isn’t so – see Amtrak.

 

Why you would take a key national function, privatize it, and say it either made money or went under, is puzzling. That seems risky – but a topic for another day.

 

In any event, Freddie Mac was created in 1968, brand new, so the newly private Fannie Mae would have some competition – couldn’t have a monopoly, you see. They’d fight with each other for profits and thus things would be even more efficient. That was the idea.

 

But these two could not sell government bonds – they were private entities. So they bundled and resold the mortgages they had purchased in other forms, various forms of “commercial paper” – guaranteeing the principle would not drop and that you’d get paid a nice dividend, and of course folks could sell that stuff to each other on the open market, so the bidding and selling had their value rise and fall during each trading day.

 

And Fannie Mae and Freddie Mac made a good profit from all this.

 

But our friend in Atlanta is right – there are no profits now.

 

Fannie Mae and Freddie Mac bought crap mortgages that had folks bailing out and missing payments and walking away – and their guarantees that the principle on the bundled product would not drop, and that you’d get paid a nice dividend, got them in trouble. They had to make good on their word on that, and lost a ton of money doing so. So they bought more and more mortgages of any kind they could find, to build a critical mass of assets to spread out the pain, but of course that was a house of cards. It fell.

 

The problem – their mandate was to guarantee home loans. That’s not easy these days. And the bundled product, all that paper, is now held mostly by foreign governments – hundreds of billions of dollars of it – and what happened last weekend was that all the calls to Paulson, from the treasury offices of governments around the world, seem to have been basically telling him our government had better stand behind these things, or there’d be real trouble – the world’s economy was at risk. So this had to happen.

 

The actual shareholders of Fannie Mae and Freddie Mac have been wiped out – common shares worth nothing now, preferred shares getting maybe ten cents on the dollar. It’s effectively not a private company now.

 

What was fixed? Those who held the bundled investment instruments were the only ones who were saved from ruin – they were the only ones made whole, and you and I will pay for that.

 

There is no money. And now the Feds will guarantee all the paper that was sold, even if it’s crap. That’s what we’ll be paying for. We’ll make good on foolish promises.

 

Sarah Palin doesn’t know any of this. But then, who does?

 

As for tent cities, we actually have one out here by the Ontario airport, in the next county east. They clear it out now and then. And we have homeless everywhere.

 

In any event, note the Obama campaign’s response to Palin’s lies:

 

“On the same day that dozens of news organizations have exposed Governor Palin’s phony Bridge to Nowhere claim as a ‘naked lie,’ she and John McCain continue to repeat the claim in their stump speeches. Maybe tomorrow she’ll tell us she sold it on eBay,” said Obama campaign spokesman Tommy Vietor.

 

That could actually happen, given that no one is checking the facts of anything.

 

Finally, from Rick, the News Guy in Atlanta:

 

Tent cities:

 

True enough, we do have clusters of homeless living in cardboard boxes under interstate highways, but that’s been going on for years before all this subprime stuff popped up. I myself would doubt many of the folks caught by the recent foreclosures literally ended up living on the streets. Those people weren’t homeless types; they were just living beyond their means and looking for any trick they could find to keep themselves in houses of “their own.”

 

McCain-Palin Road Show:

 

Have you noticed they haven’t yet changed her jokes? I’m guessing the reason she keeps saying that thing about the bridge is because she really has very little else to talk about, but also, it is such a crowd-pleaser. After all, their particular audience is not about to turn on them and demand new material; these people show up the same way fans show up to hear their favorite stand-up comedian – even if they know all the gags by heart, the fun is in hearing him say it in person.

 

When one thinks about it, maybe the reason McCain and Palin are traveling together right now is that neither of them can be left alone – he because his crowds would disappear, and she because someone might ask her a question that would require an answer that’s not in the script. I’m starting to think this ticket is running on fumes, and will either eventually fall apart in the breeze, or else someone will light a match. At least I’m hoping it turns out to be a flameout that we can all watch happen live on TV.

 

And then they’ll inevitably blame the media, of course. For covering it. Or something.

 

Yep, it is sort of a traveling show now – come and enjoy the comic styling of the new team of Null and Void.

 

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About Alan

The editor is a former systems manager for a large California-based HMO, and a former senior systems manager for Northrop, Hughes-Raytheon, Computer Sciences Corporation, Perot Systems and other such organizations. One position was managing the financial and payroll systems for a large hospital chain. And somewhere in there was a two-year stint in Canada running the systems shop at a General Motors locomotive factory - in London, Ontario. That explains Canadian matters scattered through these pages. Otherwise, think large-scale HR, payroll, financial and manufacturing systems. A résumé is available if you wish. The editor has a graduate degree in Eighteenth-Century British Literature from Duke University where he was a National Woodrow Wilson Fellow, and taught English and music in upstate New York in the seventies, and then in the early eighties moved to California and left teaching. The editor currently resides in Hollywood California, a block north of the Sunset Strip.
This entry was posted in Amtrak, Blaming the Press, Charlie Black, Complexity, Economic Issues, Economic Meltdown, Fannie Mae and Freddie Mac, Home Ownership, Journalism, McCain's Palin Gamble, Palin Lies, Palin Under Wraps, Palin Unqualified, Qualifications to be President, The Bridge to Nowhere. Bookmark the permalink.

2 Responses to The Bailout as Seen from Boston, Paris, Atlanta and Los Angeles

  1. Ran says:

    An aside re Amtrak… Amtrak’s stock is not held by the general public. It is, technically, a private corporation, incorporated in D.C., but its stock is owned by the US. DOT. Some preferred stock is held by people who inherited it from freight railroads, but aside from some lawsuits to the contrary, no one expects them to ever see any dividends.

  2. a few more steps ’til the U.S. becomes completely socialist, then it’s smooth sailing from there on out

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