Relevant and even prescient commentary on news, politics and the economy.

What is an Asset?

I like Brad DeLong, conceptually. Even his errors in judgment are based on rational principles. And he has a really useful piece up right now about “dealing with financial crises.” (One of the nice things about it is that it also completely undermines his earlier suggestion that the Fed was wrong not to ease on Tuesday. As Mark Thoma and I, among others, suggested, they clearly knew it would do no good, and “saved their powder” accordingly.)

There are only a few problems, key of which is the title of this piece. Derivatives may have a value, but are they actually assets? Worse, if the Fed buys an asset, does it also have to buy all of the associated derivative contracts, one side of which may—by that simple—become worthless or become payable?

I’m not suggesting that Helicopter Henry and Biplane Ben’s $100B inflation solution isn’t going to work,* but if you’re trying to limit contagion, you generally don’t start by infecting healthy entities.

Of course, that assumes the entities are healthy. The commenters at Infectious Greed have gotten more astute as the day goes by:

AIG, Leucadia, Loews, Berkshire Bancorp and Berkshire Hills Bancorp (gotta protect the high ground!) but not Berkshire Hathaway, AmEx or Capital One. Also Affiliated Managers Group and Pzena but not Legg Mason. Fascinating; like a train wreck in progress.


That “do not short” list is basically the list of companies you must to sell if you have any of them in your portfolio.

Or, as an old friend just e-mailed me, “So. I see there’s a list of 799 financial forms that cannot be shorted….that is by no means all the financials in the US market…is there any reason at all that we shouldn’t take this as a list of financial companies KNOWN TO BE UNSOUND?”

So maybe I shouldn’t be worrying so much about possible contagions.

DeLong rather cavalierly, though, throws out a straw man to reject it:

Fourth, there is now no time for tolerance of the three objections to this analysis and this plan of action, roughly: (1) it’s immoral, (2) it’s unfair, and (3) it can’t work in the long run. To expand a bit:

1. It’s immoral because people have a right to be treated like adults–which means that they have a right not to be rescued by the government from the consequences of their bad judgment, and we are violating that right.
2. It’s unfair because feckless greedy financiers who caused the problem ought to lose money and aren’t–or aren’t losing enough money–and because feckless greedy imprudent thriftless borrowers who caused the problem ought to lose money and aren’t–or aren’t losing enough money.
3. It won’t work–at least not in the long run.[emphasis mine]

Let’s ignore that, given that he dismisses (1) and (2), (3) becomes inevitable. Let’s even grant (1)—while noting that he deliberately phrased to place it in the poorest light possible—since a bailout is necessary,** and targeted bailout isn’t going to work.***

Let’s just say #2 sticks in my craw a bit. Especially if you’re making the absurd claim that there “is now no time.”

Helicopter Hank and Biplane Ben have had six months since The Old Firm went the way of all Southern Pacific Railroads. During that time, they have created Special Purpose Vehicles (SPVs) like a derivatives shop on Gramm-crack. They have red-socked**** us more times than we can count to provide nearly a billion dollars worth of liquidity so that those risky assets could be managed, marked appropriately, unwound, or sold.

And now they’re going to throw “hundreds of billions of dollars” more into the giant Money Pit that is ever-increasing its lending standards to companies that are far better run than they are.

And Brad DeLong has just declared that we shouldn’t hold anyone responsible; indeed, the Hank Greenbergs and Dick Fulds and Jimmy Effing Caynes of the world should continue to be rewarded by the U.S. taxpayer, because “there is no time.”

So, Brad, when you tell us that we don’t have the time to hold people responsible for their actions, and we tell you it won’t work in the long run, remember the reason we’re saying that. Because, in pre-Paulson/Bernanke economic theory, actions used to have consequences. Now, they can just cost the taxpayers.

And when I add that to your final graph—the one that is supposed to get us back to that “good equilibrium” point—I stop seeing it as an intertemporal equilibrium point and more as an outlier from the payoff-dominant strategies you are effectively advocating be concretized.

*It’s not the way to bet, but you go to war with the policies you have.
**Just as it was for Argentina in 2001 and…what…Washington Consensus? Sorry, no habla ingles.
***We shall ignore, since he does, that the reason targeted bailouts didn’t work is that companies smelled blood (money) in the water and decided to go for it, leaving us with Chris “stocks can only go up” Cox bending the U.S. taxpayer over a little more.
****Trust me, if you don’t know this phrase, you do not want to look it up. Assume from context.

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We have part of an answer

Documentation of a minor disruption:

Lehman won’t return “billions” of frozen prime-brokerage assets “in the short term,” said PricewaterhouseCoopers, administrator for the Lehman bankruptcy.

Meanwhile, several hedge funds are planning to sing the Bono phrase from “Do They Know It’s Xmastime?”* to their cohorts at Morgan Stanley:

Hedge funds that account for less than 10 percent of Morgan Stanley’s prime-brokerage balances this week withdrew their money or told the firm they planned to, according to a person with direct knowledge of the matter.

And the really good news:

The loss of all hedge-fund accounts wouldn’t materially affect the company’s access to reserves, said the person, who asked not to be identified because the information is confidential.

I’m not certain I would take that as encouraging.

“Hedge funds tend to look at counterparty risk as they would an equity investment,” said Adam Sussman, director of research at TABB Group LLC, a New York-based adviser to financial-services companies. “If they’d bet against the stock, they’d also be likely to minimize their exposure to their prime brokerage and trading over-the-counter derivatives with them.”

I believe Bloomberg just indicated that the hedge funds leaving Morgan Stanley are “voting with their feet.”

“Foremost on people’s minds is ensuring that wherever they decide to put assets, they will be secure,” [BNP Paribas SA’s global head of hedge-fund relationships, Talbot Stark] said in an interview today.

With Treasuries yielding 0.00%—about the same as your mattress, except with no option value—”security” has become more important than (to borrow an old phrase from a deceased-but-no-longer-mourned firm) Risk-Adjusted Return on Capital (RAROC).

And it appears that the Wizard of Id’s version of the Golden Rule** still applies. Even if it really was their fault:

The people who ran the financial firms chose to program their risk-management systems with overly optimistic assumptions and to feed them oversimplified data. This kept them from sounding the alarm early enough.

Maybe more on this later.

*”Well tonight thank G-d it’s them/Instead of you”
**”He who has the gold makes the rules”

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Saying It All

Unlike Fannie and Freddie, AIG was royally and truly doomed. The Fed tells us so:

In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this Act, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal Reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual, partnership, or corporation the Federal reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships, or corporations shall be subject to such limitations, restrictions, and regulations as the Board of Governors of the Federal Reserve System may prescribe. [emphases mine]

The notes are for two years at LIBOR + 850. Yes, you read that correctly: 8.50% over the London Interbank Offer Rate.

Three month LIBOR is currently around 2.81%. That makes the all-in Cost of Funds at par right now 11.31%

For comparison, Ford bonds in the secondary market, are yielding around 9.50% for similar maturities.

And the Fed is the only entity willing to offer such terms.

Let’s ignore that they’re making the same mistake they did with Fannie and Freddie, creating a structure that ties the firm to its past mistakes, providing no incentive or changes to the business process, and all the while socializing the risk. Let us just repeat the dismal chorus:

The Fed is the only entity willing to offer AIG terms that are about 180 bp wide of where Ford Motor Credit is trading.

Come to think of it, let’s not ignore the mistakes, for after giving Daniel “son-of-Roger-acts-like-Harry” Mudd $14MM to Just Go Away:

The Fed is the only entity willing to offer AIG terms that are about 180 bp wide of where Ford Motor Credit is trading, and Hank Greenberg—who ran the firm into the ground but remains a major shareholder and on the Board of Directors—will still have a piece of the “nationalised” firm.

Privatize the profits, socialise the risk. Paul Kedrosky is correct when he says we should not throw around phrases such as “moral hazard” and “risk homeostasis,” yet we are left once again to realize and document that those who were paid to be responsible shirked their duties, and we must now wonder—the year after Hurwitz, Maskin, and Meyerson were awarded the Riksbank “Nobel” in Economics whether anyone who has been running and regulating financial firms for the past seven years really understands mechanism design, or even “creative destruction.”

David Leonhardt tries to put a positive spin on things. In the immortal words of Tom Paxton, he “fails miserably” when he also tells the truth:

But if you take a moment to think through the full Chrysler story, you start to realize that it’s setting a really low bar. The Chrysler bailout may have saved the company, but it did nothing, after all, to stop Detroit’s long, sad decline.

He goes on to cite Barry Ritholtz‘s forthcoming book, Bailout Nation:

If Chrysler had collapsed, [Ritholtz] argues, vulture investors might have swooped in and reconstituted the company as a smaller automaker less tied to the failed strategies of Detroit’s Big Three and their unions. “If Chrysler goes belly up,” he says, “it also might have forced some deep introspection at Ford and G.M. and might have changed their attitude toward fuel efficiency and manufacturing quality.” Some of the bailout’s opponents — from free-market conservatives to Senator Gary Hart, then a rising Democrat — were making similar arguments three decades ago.

Instead, the bailout and import quotas fooled the automakers into thinking they could keep doing business as usual. In 1980, Detroit sold about 80 percent of all new vehicles in this country, according to Autodata. Today, it sells just 45 percent.

So let’s be optimistic. In thirty years, we may not have much of the vestiges of AIG to kick around any more, and American insurance companies will look on these as “the good old days.”

Come to think of it, when did optimism and pessimism come to the same result?

UPDATE: Brad DeLong summarizes the situation in one line:

LIBOR + 8.5%—now that’s lending freely at a penalty rate! They’ve given AIG a credit card!

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Roubini’s not wrong, but…

Let’s stipulate what “everybody knows”:

  1. There are some assets in the capital markets, many of which are mortgage-related, that were seriously overvalued over the past several years.
  2. Many of the others are Credit-related (CDS and CDOs and the like).
    1. Most of the two asset types listed above are reasonable concepts that, if they are commoditized, appear more liquid than they are. (Ask any homeseller in the current market.)
    2. Multiple sequences, while they don’t increase the total systemic risk (algebraically impossible), can have a distorting effect on risk, and
    3. Leveraging assets that are not so liquid can lead to cash flow mismatches in the best of circumstances.

  3. Attempting to arbitrage a perceived opportunity between a long-term obligation and a similar short-term obligation depends very much on funding, carry considerations, and liquidity. (Not certain if everyone knows that one—but everyone who does risk management should.)
  4. The Fed fears a “contagion effect” that will do more damage to the financial system than the “moral hazard” that accompanies “saving” any given firm.
  5. The Fed “saved” Bear Stearns (a.k.a., The Old Firm, or BS for short), to extent that they guaranteed the second through thirty-first billion dollars in losses that JPMC may (or may not) realise from having bought the firm.
  6. The Fed “saved” Fannie Mae and Freddie Mac in the stupidest way possible, ending their forty years in the desert as semi-private entities.
    1. The leaders who drove Fannie and Freddie into the Fed’s arms were rewarded handsomely for their not-so-creative destruction of their firms, most especially Daniel “acted-like-Harry” Mudd.

  7. On the surface, a Fed that saved BS should be likely to save LEH. (See rdan’s post below, citing Nouriel Roubini discussing the similarities.)

The center of Roubini’s argument seems to be this:

But then if on Monday no deal is done Lehman collapses and goes into Chapter 11 court and you have the beginning of a systemic financial meltdown as the run on the other broker dealers will start. Thus, what Fed and Treasury are trying to do this weekend is another 1998 LTCM bailin or Korea 1997 bailin, i.e. trying to convince all the major institutions to either support a purchase of Lehman or maintain their exposure to Lehman if no buyers is found.

The Chapter 11 filing appears to be what is about to happen. The rest is, perhaps, unfolding as it should.

What Roubini is talking about is, basically, the same thing as the “contagion effect” referenced in bullet (4) above. If Lehmann gets protection, many of its obligations will be reduced. So if LEH owes you $100 million, you may only get some fraction of that amount, or nothing, depending on the value of the assets and how secured a creditor you are. So if that $100 million exposure to LEH is essential to your operations, and you haven’t been able to take actions to mitigate it in the past six months, you may fail. Etc., as the Turtles once said.

So, yes, there will probably be some businesses that—despite almost six months of warning, since Bear and Lehmann were spoken of in the same breath, and had approximately the same leverage, when BS was purchased—who will suffer, and probably a few will go out of business.

But the effect of LEH going out of business would not be so severe as the effect of BS going out of business for one reason that Roubini, for some reason, appears not to have mentioned.

Lehmann has no clearing business.

Had Bear gone out of business, about 30% of the hedge funds in the country would not have been able to execute virtually any transaction for the following thirty days. Not a payment. Not a redemption. Not a trade on a listed exchange. Not a receipt. Not a de-leveraging. Not a swap payment, not a CDS payment, not fulfilling an option exercised against them.

There’s not just a “maybe” about financial collapse in such a scenario; P probably well in excess of 0.9944. $30 billion is a “bargain” in such a situation.

LEH has been on the ropes for at least six months, probably longer.* They were given a “word of confidence” by Goldman at the same time the Street was conspicuously silent about the prospects for BS.*** Anyone who has been looking at their risk positions without looking at their LEH exposure over the past six months doesn’t belong in the risk management business. As DealBook noted last Wednesday:

Financial institutions have been closely measuring their exposure to Lehman. On Tuesday, commercial and investment banks said they continued to do business with Lehman, and hedge funds did not appear to be pulling their accounts with the firm, events that helped precipitate the fall of Bear Stearns.

There’s a brilliant moment in Janet Tavakoli’s Credit Derivatives and Synthetic Structures:

[B]efore the fall 1997 [Korean banking] crisis, I took a call from a trader at a securities firm….The trader told me that several Korean banks were willing to offer credit default protection on other Korean names. In order to bolster up their own credit perception, they were willing to post 30 to 40 percent of the notional amount with G7…collateral….The trader then went on to tell me that Commercial Bank of Korea would sell credit default protection on bonds issued by the Commercial Bank of Korea.
“That’s very interesting,” I countered, “but the credit default option is worthless.”
“But people are doing it,” persisted the trader.
“That’s because they don’t know what they’re doing,” I affirmed. “The correlation between Commercial Bank of Korea and itself is 100 percent. I would pay nothing for that credit protection. It is worthless for this purpose.”
The trader mustered his best grammar, chilliest tone, and most authoritative voice: “There are those who would disagree with you.” (p. 85)

Several months later, those people were, presumably, downsized. Eleven years after that, no one in the market today would make the mistake of not considering the risk of the guarantor as well as the guaranteed.

LEH will file bankruptcy, but the market has largely priced that into its current market valuations. There will be failures, and there will be many stories about the suffering of former LEH employees, and the occasional counterparty without another option close at hand.

But its failure would not have a contagion effect, and any Fed support should be not to save the firm itself but, in the manner of the SBA’s efforts in NYC seven years ago, small loans to ensure that as few of those counterparties whose businesses are impaired by the LEH bankruptcy are unable to find other sources of capital.

As for the other firms—MER, AIG, etc.—those that can be saved are already taking action, if they still can.

After a necessary saving of BS, and an ill-timed, ill-considered deprivatization (h/t Brad DeLong) of Fannie and Freddie, letting LEH declare bankruptcy—assuming it remains necessary through the night—is the best choice.

Even if Alan Greenspan does agree with it.

*If you look at the debt market, they knew BS was a junk or near-junk credit in August of 2007 (5-yr notes at 245 over), when the stock was still trading at levels well north of 100.** LEH debt at the time was priced significantly higher (10-year notes in July 2007 ca. 140 over [same as Bear link]). “Lehman’s credit-default swaps [then] carr[ied] an implied rating of Ba1, according to Moody’s.” And no one believes things go better since then.
**There is a reason everyone agrees that fixed income is more difficult to price than equity. Accordingly, FI people dig a lot deeper in their evaluations. Or, at least, that appears to be the case here.
***LTCM memories, anyone?

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Trickle-Down in Action?

The Yahoo! headline says most of it: GMAC slashing workforce; reducing mortgage lending.

I discussed the GMAC problems at Marginal Utility almost eighteen months ago. Things haven’t gotten much better since then. But some of the Mortgage Industry players have changed partners:

Lender GMAC Financial Services said Wednesday it will close all of its 200 retail offices and lay off about 5,000 employees as part of plan to reduce its mortgage lending and servicing because of the housing market downturn.

The majority of the layoffs are slated for GMAC’s mortgage lending division, Residential Capital LLC, known as ResCap, and will reduce work force at the unit by 60 percent, the company said.

“While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment,” Tom Marano, ResCap’s chairman and CEO, said in a statement. “Conditions in the mortgage and credit markets have not abated and, therefore, we need to respond aggressively by further reducing both operating costs and business risk.”

Tom Marano—who knows mortgages and the mortgage market inside and out—was, prior to his moving to ResCap, the head of mortgage origination at Bear Stearns.

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The Mukasey Rules: Schools not to send your children to

The traditional annual list of Party Schools now has a jump-start. In no particular order, except the way CNN listed them:

    Ohio State
    Middlebury College
    Rhodes College

The reasoning is such that Only the Current Attorney General could love:

“This is a law that is routinely evaded,” said John McCardell, former president of Middlebury College in Vermont who started the organization. “It is a law that the people at whom it is directed believe is unjust and unfair and discriminatory.”

“Is routinely evaded” is College President-speak for “The system is broken, so I’m not responsible.”

Since this reasoning also applies to most recreational drug consumption, including but not limited to marijuana, crack, cocaine, and Ecstasy, I expect the Amethyst Initiative to move on to those areas next.

It falls to a former Clinton Administration official to tell the truth and shame the Devil,* in around the 16th or 17th graf:

But some other college administrators sharply disagree that lowering the drinking age would help. University of Miami President Donna Shalala, who served as secretary of health and human services under President Clinton, declined to sign.

“I remember college campuses when we had 18-year-old drinking ages, and I honestly believe we’ve made some progress,” Shalala said in a telephone interview. “To just shift it back down to the high schools makes no sense at all.”

And it is even later in the piece that they point out that the researcher whose work the Amethyst Initiative cites not only disagrees, but sees through the facade:

McCardell cites the work of Alexander Wagenaar, a University of Florida epidemiologist and expert on how changes in the drinking age affect safety. But Wagenaar himself sides with MADD in the debate.

The college presidents “see a problem of drinking on college campuses, and they don’t want to deal with it,” Wagenaar said in a telephone interview. “It’s really unfortunate, but the science is very clear.”

To coin a phrase, “Why, oh why, can’t we have a better press corps?”

*Yes, I have been reading and re-reading Stephen King recently. Why do you ask?

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Variation on "Pay the$2" Joke

My Loyal Reader sends this link, with this pull quote:

“They had four major and respected law firms advising them, as well as Lazard,” said Markel. “And all of them, all of them were advising the board that there was zero value in a bankruptcy for shareholders as well as losses to creditors.”

When are the JPMChase shareholders going to file a suit against Mr. Dimon et al. for their foolish paying of an additional $8/share?

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The WSJ Editorial Page: Fumbling Toward Accuracy II

The editors of the WSJ agree with Brad DeLong that the Fannie/Freddie problem is that their short-term cash flows may be(come) impaired:

The most immediate danger is that investors will shrink from rolling over the debt of the two companies, leading to a run a la Bear Stearns….With so much on the line, we’ve been suggesting that Treasury and Congress step up now with a public capital injection to help [Fannie Mae and Freddie Mac] ride out their losses.

So let me see. The solution to avoiding spending taxpayer monies is…spending taxpayer monies? Let’s see how quickly they backtrack:

Yes, this would mean putting some taxpayer cash up front, but in the cause of avoiding the far greater risk of a collapse or Bear-like run. If the capital injection was made in the form of a subordinated debt or preferred stock offer, taxpayers would get a stake in the companies and some return on their investment once the crisis passes.

Isn’t this usually what gets done in the “free market”? In fact, iirc, The Big C has done this a few times recently.* Why should FNMA and FHLMC be different?

We haven’t suddenly become socialists. What taxpayers need to understand is that Fannie and Freddie already practice socialism, albeit of the dishonest kind. Their profit is privatized but their risk is socialized. We’re proposing a more honest form of socialism, with the prospect of long-term reform. [emphasis mine]

The above paragraph is something I could have written. And probably have. And it only gets better:

In return for putting up the cash, the taxpayers would also need some reassurance that this Fan and Fred debacle couldn’t happen again. Thus their regulator would need the power to shrink their portfolios of mortgage-backed securities that have made them such high-risk monsters, and ultimately to wind the companies down. Apart from outright failure, the worst scenario would be a capital injection that left the companies free to commit the same mayhem all over again two or 10 years from now.

You got it, folks. The WSJ has just come out in favor of (1) a government bailout and (2) more regulation of, effectively, an industry.**

But wait. Did you catch the shift? Let’s try it again:

Thus their regulator would need the power to shrink their portfolios of mortgage-backed securities that have made them such high-risk monsters, and ultimately to wind the companies down.

Whoop, there it is! Same old WSJ. Save the mortgage market just to destroy it. Which must be why, since (see the DeLong link above) Fannie and Freddie are solvent in the long-term, they go on to object to one option:

On Friday, Senate Banking Chairman Christopher Dodd (D., Conn.) declared that Fannie and Freddie are “fundamentally strong,” that fears about their capital are overwrought, and that “this is not a time to be panicking about this. These are viable, strong institutions.” Yet he also said that one option under discussion is to let the two companies borrow from the Federal Reserve’s discount window.

Let’s see. We have a short-term cash flow issue that may arise. Two possible solutions are: (1) ensure that the firms have a borrowing line available that is both higher than the FedFunds rate*** and perfectly in keeping with the implicit guarantee of their loans or (2) add some cash now, but with the goal of eliminating the firms, probably just about the time the U.S. housing market starts to recover.

If that second is the case, will their auditors be allowed to say, “Since you don’t intend this to be an ongoing concern, we aren’t going to bother to dig too deeply?”

The WSJ piece ends with a classic “disregard what we’ve said for the past several years, especially the David Malpass and Larry Kudlow editorials”:

If there’s any other good news in all this, it is that the scandal of Fannie and Freddie is at last coming into public focus. The Washington political class has nurtured and subsidized these financial beasts for decades in return for their campaign cash and lobbying support. Wall Street and the homebuilders also cashed in on the subsidized business, and also paid back Congress in cash and carry.

The losers have been the taxpayers, who will now have to pay the price for this collusion. Maybe the press corps will even start reporting how this vast confidence game could happen.

Dear Press Corps: please start by examining the WSJ’s continual “everything is good because house values keep appreciating” pieces.

*Yes, I know they have. Just don’t have time to find links now.
**Since Fannie and Freddie-backed mortgages make up a large majority of the industry; op. cit. here.
***I’ll stop making fun of the “Discount” Rate when it goes back to being a Discount Rate. Possibly, the next President will be sane.

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Pot, Kettle; Kettle, Pot

John Carney at Dealbreaker notes the official reason the White House prefers that the government takeover Fannie Mae and Freddie Mac:

The reason the Bush administration is leaning toward bringing Fannie Mae and Freddie Mac into conservatorship rather than backstopping the two home mortgage companies is that concern about moral hazard problem. Bailing out Fannie and Freddie would reward years of aggressive use of financial mismanagement, according to some members of the administration.

When I stopped laughing at the idea that George W. Bush-led administration would object to the government rewarding financial mismanagement, I found Carney had actually admitted the real reason:

In the Old Executive building and the White House, Fannie Mae is viewed by many as a hotbed of waste, fraud, abuse and Democratic featherbedding.

Whereas “fraud, abuse,and Republican featherbedding” are the rule of the day.

But then Carney goes off the deep end:

What’s worse, the administration believes that both companies failed their public mission of making housing affordable.

Uh, this is the administration that argued for the ownership society, right? The Administration that trumpeted the (temporary) growth in home ownership over the past five or so years as proof its policies were working? The same people who decided that the cap on Fannie/Freddie loans needed to be raised from $417,500 are now worrying about “making housing affordable”?? (Which is different, clearly, from making housing affordable.)

Do they believe all those new owners were financed solely by Countrywide and Indymac [LINK UPDATED] and other well-run, profitable, free-market companies such as The Old Firm or Lehman?

The normally-astute Yves Smith was complaining a while back about the fact that Fannie and Freddie (and FHA) are virtually The Only Lenders left in the market. It’s possible that the move back to being government entities (as opposed to GSEs) will strengthen, or even reinvigorate, the housing market.

But it’s not the way to bet.

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