Breakdown

Crid, the breakdown is only as useful as the analogy between the Federal government and a household is accurate: not very.

It would help Palmer's case a great deal if he were honest enough to mention that there was an entire industry of private mortgage companies and banks buying, selling and securitizing bad loans that were not subject to CRA lending standards; the FHA and GSEs were far from the only guilty parties in the subprime disaster. But hey, let's not let facts get in the way of ideological consistency at Cato.

christopher, those institutions had always bought the "paper" from the others. What they are guilty of is realizing the toxic paper they were holding and packaging it up to get rid of it before it blew up in their faces. To say that the liberals did not drive this mess is just a huge denial of facts.

We Guarantee It: The Credit Rating Agencies

Along with pressuring banks to make risky and outright bad loans, the government pressured the credit rating agencies to put AAA on that debt. Fannie Mae (and Freddie Mac) thoroughly confused the housing bond market for 20 years. Fannie Mae had the implicit guarantee of the government and many explicit privileges that connected it to the government, unlike any truly private company. The ratings agencies respected that implicit guarantee, and put AAA on Fannie Mae debt. Then, they put AAA on all similar debt.

The ratings agencies could not say that Fannie Mae bonds were AAA because of implicit guarantees (publicly denied by politicians), while properly downrating other, similar debt. The contradiction would have made all of that debt questionable (as it should have been)

An "implicit guarantee" is when powerful politicians are pushing a program and clearly are not going to let it default. They will spend any amount of money to avoid bearing personal responsibility for a failure. This is how it has worked out.

Here is a quote at the above link
( easyopinions.blogspot.com/2008/10/we-guarantee-it.html#bardo )
=== ===
Craig Bardo:
The failure of the ratings agencies has had consequences that are out of proportion. It should not be dismissed as a simple regulatory mistake.

I represented bond issuers and designed entire programs based on getting better ratings as well as better tax treatment for non profit issuers. Why did the ratings agencies get the mortgage securities so wrong and not the debt of hospitals, colleges, and universities I represented? Why did purchasers do better buying lower-rated health and university bonds than the higher-rated mortgage bonds?

The answer lies in political pressure. My issuers had very little power over the rating agencies. But, the federal government effectively provided the charter for the ratings agency, and the federal government tacitly backed the bonds being rated.

Even the most seasoned, hardened analyst working for the ratings agency would have had a hard time stating that those bonds were not worth the paper used to print the offering document
=== ===

The government supported a market in bad loans through Fannie and Freddie. The House Financial Services Committee chaired by Barney Frank specifically rejected the warnings of OFHEO, a department within Congress set up especially to regulate Fannie and Freddie. OFHEO said there should be an audit; Barney Frank said don't bother.

The government put up a sign "We Buy Bad Loans". Now our politicians complain that evil businessmen created the bad loans that they wanted to buy, granting the loans to people who could not repay the loans, exactly as planned by those politicians.

By coincidence, I saw an article on Thehill.com the other day about how the revenues of K Street firms are way down this year. I guess everyone is getting frustrated with politicians who won't stay bought.

> the breakdown is only as useful as the analogy
> between the Federal government and a household
> is accurate: not very.

I hate that kind of comment. It's just so mouthy and idiotic; as if the man on the street had no tools to comprehend the complicated, technical nature of our nation's debts.

I mean, if that's the case, why are voters allowed to participate at all?... Including through taxation?

Inaccurate analogies, babe... We'll take care of everything down at the office. Don't you worry your pretty little head about it.

People can understand this stuff if they take the time; facile analogies obscure more than they clarify.

So silly for the little minds to trouble themselves with the proportions of public finance...

Silly for minds to attend to oversimplifications when they are capable of understanding things in useful detail.

Naw, you just don't want the argument. I've been putting off another comment about it, trying to find an earlier thing on this here blog a few years ago... There are analogies to be made to creationists vs Darwin.

There's no reason to believe your standard of "useful detail" is anything but pretentious posturing. You're preemptively arguing in the style of an postwar feminist (made inorgasmic by antidepressents) that her husband "Just doesn't get it."

Thang is, taxpayers don't need to agree with you, even if you're right (which strikes me as unlikely). It's their money. Not yours, and certainly not because you've convinced yourself you understand these forces more clearly than do they. I think condescension of your kind is a balm to OWSers, who want badly to pretend their insights are about decency rather than envy.

"Useful detail."

Ok, if you say so.

Contention is so unpleasant... Let's just pretend it's beneath us.