Kicking Another Can Down the Road

The Federal government, that failed to use regulations that were there to keep economic disaster from happening, announced today that it will take over Freddie Mac and Fannie Mae. The revision of their operations and structure is left for the next Congress. Actually, though it displays the existing officials' inability to deal with the crisis they produced, it is reassuring that better office holders will be handling the restructuring.

A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance," Paulson said.

Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.

The Federal Reserve and other federal banking regulators said in a joint statement Sunday that "a limited number of smaller institutions" have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans."

The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.

Paulson said that it would be up to Congress and the next president to figure out the two companies' ultimate structure.

This is another instance of legislating appearance, which this occupied White House chooses because it expects the public to accept appearance rather than demand substance. Once again, no accountability occurs until after January 21, 2009.

The crises that have occurred over and over because regulations were not used, by Alan Greenspan more than by Paulson, are a proof of failed philosophy, one that the wingers will not own up to. Their aim is to keep up an appearance that will reassure investors and the financial community that the 'fundamentals are sound', a bit of voodoo economics if there ever was one. If they can scoot out before the total collapse of house prices descends on the economy, they are going to consider the two terms in high office as a success.

If we can manage to get responsible administration into office, the regulations that were there all along will be adequate to prevent further disasters. The protections we need are those against dysfunctional executive branch officials. More independence from the White House for the financial regulators, and the Department of Justice, is something that needs to be explored.