Hogan's Alley

Sunday, September 28, 2008

Economic Crisis, Plenty Of Blame To Go Around

Rep. Rahm Emanuel, Democratic Congressman from Chicago, and apparently the anointed spokesman for the Democratic Caucus in the House, was just seen on CNN giving the Democrats spin on the newest version of the proposes bailout legislation. It should be noted that Emanuel was a high ranking staffer in the Clinton White House and is arguably the most passionately partisan member of the House.

According to Emanuel, the blame for the current state of affairs can be entirely laid at the feet of the Republicans and their penchant for the free market and limited regulation. Fair enough. There is surely some truth in that. But is that the whole story?

I think not.

In 1999, the NY Times reported the following:

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

(emphasis added)

The author of the piece, Steven A. Holmes, goes on to say:

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

Prescient, no? Perhaps Emanuel should acknowledge that sometimes no good deed goes unpunished and that complex policies often have unintended consequences.

Nah, never mind. It's more fun to play the political game.

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Thursday, September 25, 2008

Obama/McCain: No Big Whoop

Although I have not blogged for some time and not at all since the finalization of the Presidential race, I now feel the urge to say why I've had such a lack of interest.

The shared media wisdom, repeated in a endless feedback loop by the pundits and bloggers is that this is THE most important election in modern American History. How else can they convince us to tune in to CNN regularly to touch base with Wolf in his news war, er, situation room.

It may be less crucial than some claim, but it is certainly the one I hoped for.

Barrack Obama seemed to me best and the brightest that his party had to offer. John McCain is a man of honor and decency. During the primary phase of this election, each sought to play to the passions of the activists in the key states.

But now having won the nominations, both are sounding more alike than they are different. This is part of the natural progression of Presidential elections. If you can't win the middle, you can't win. But, importantly, it is also a function of the realities on the ground, both abroad and in the canyons of lower Manhattan.

In 2009 in Iraq either man will begin the process of withdrawal and our troops will substantially be out of there in 16 - 24 months. An insubstantial difference. The only thing that matters is that it be done smartly.

In the face of today's economic crisis, neither man will be able to truly solve the issues of medical insurance, Social Security, education, or any of a dozen very expensive issues that Americans tell pollsters they care about.

Here's how Peggy Noonan put it the other day:

A final point. Do you ever have the passing thought that the presidential election doesn't matter as much as we think? Whoever wins will govern within more of less the same limits, both domestically and internationally. A New York liberal leaning toward Mr. McCain told me this week he has no fear that Mr. McCain may be a more militant figure than Mr. Obama. We already have two wars, "we're out of army." Even if Mr. McCain wanted a war, he said, he couldn't start one.

I wonder if we follow the election so passionately because we're afraid. We're afraid a lot of our national problems are intractable, and the future too full of challenge.

We cannot tolerate feeling this way. So we make believe the election can change everything. And we follow it passionately to convince ourselves its outcome will be decisive and make everything better. We reassure ourselves with pictures of the cheering crowds at the rally. We even find some comfort in the latest story of the latest dirty trick. But deep inside we think: Ah, that won't work either.

Some part of me thinks we are all making believe this is a life-changing election because we know it's not a life-changing election. Ever have that thought? Me too. Then there's a rally or a scandal or a gaffe, and it passes.


Today, Ross Douthat had this to say today:

All Presidential elections are important, of course, and they're usually important for reasons that nobody sees coming during the election itself. But given the evidence presented to date - the enormous constraints on American action abroad, a fiscal situation that more or less ensures that neither candidate's boldest ideas are likely to get off the ground, and the unimaginative, substance-averse politicking of the candidates themselves - there's good reason to think that the outcome of this election won't be nearly as transformational as many people seem to think. Partisans on both sides claim that we're staring into the abyss: If you listen to some conservatives, you'd think that John McCain and Sarah Palin are all that stands between turning over U.S. foreign policy to William Ayers and Jeremiah Wright; if you listen to some Obamaphiles, you'd think that a vote for McCain is a vote for fascism, or theocracy, or the Putinization of America. But if you watch the candidates themselves, and listen to them, the stakes seem much, much lower.

It is interesting that only those on the right of the pundit class have so far acknowledged this state of affairs. Perhaps those on the left feel the inexorable pull of anger at the past eight years and their failure to turn Bush out earlier. But let's make a small wager. The real problems America will face in the next four years are not now on the table, at least in a highly visible way and the die is already cast about the problems that currently fire our passions. At the end of the next President's term, we will look back and have to concoct an entirely new set of issues to fire up the masses.

That doesn't mean that appearances don't matter. They do. The election of an African American will go a long way towards repairing the country's original sin. That would be a good thing. And it may be that Obama is just plain smarter that McCain. As Warren Buffet said the other day about investment strategy, "I bet on brains."

Advice equally relevant to our choice for the White House.

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