Wednesday, September 10, 2008

Analysis: Will the bailout help the political futures of incumbents or a particular political party?

Who the Fannie Mae/Freddie Mac bailout is really supposed to help.
By Daniel GrossPosted Monday, Sept. 8, 2008
On Sunday, the Treasury Department announced that it would effectively take over Fannie Mae and Freddie Mac, the critically wounded government-sponsored mortgage behemoths. (This landing page at the Treasury Department has the details.)

Generally speaking, the federal government has been content merely to watch the failures stemming from the real-estate/housing-credit bubble. If individuals default on their mortgages and get foreclosed on, that's their proper comeuppance. If subprime lenders go out of business, that's capitalism's creative destruction. If banks start to fail, as they're now doing at a rate of one per week, no big deal.

But Washington reacted with alacrity when a second-tier investment bank, Bear Stearns, threatened to take the plunge. And the case of Fannie Mae and Freddie Mac is a rare example of Washington regulators being slightly ahead of the curve. Of course, Fannie and Freddie are bigger and more significant than any of the financial firms that have failed thus far. But the reason for the fevered weekend rescue activity has less to do with the companies' size than with their scope.

(this article continues at: http://www.slate.com/id/2199564/?from=rss)

27 comments:

Vina A said...

In my opinion, it will not help a particular political party, but it is important that the government supports Fannie Mae/Freddie Mac to stabilize the market.

kylem27 said...

^^^ It will help Obama more than it will help McCain because Obama is more for helping people than McCain is.

mlowe1191 said...

hummm well i dont think it will help any party much, but its great for the people of the USA because the government is not going to let the Econ. fall out so this is going to help all home owners who are struggleing with lones.

Alli B said...

The Fannie and Freddie bailout is going to effect all Americans, not just homeowners. If the issue has any positive effect on the Presidential nominees it will help the Republicans. The Bush Administration helped avoid a serious economic problem and McCain may be able to use this to his advantage, especially if the Democrats try to attack the Republicans about the economy.

JeremyL said...

I dont think that it will help either party very much... But as other people have said so far, I agree that it will help the people voting...

Alex H said...

I'm not sure who it will help. It will certainly make voters look much more closely at each candidate's plans for the economy.

Jenni F said...

I just read an article on Canada's currency for Geography on Bloombrg.com ("Canada's Currency Declines as U.S. Dollar Advances, Oil Falls) by Ye Xie. It mentioned the bailout and said:

"Canada's main stock index plunged to the lowest in almost six months..." in part because of the bailout and "the broad U.S. dollar strength."

But also Mark Chandler of RBC Capital markents in Toronto said the rescue of Fannie and Freddie is "not a magic bullet for the economy as a whole."

So if the dollar value rose, as the article mentioned, that might give Obama something to mention in his speeches as he is the one who wants to "make the dollar value higher," but doesn't present an amazing solution.

Ryan K said...

I believe the bailout will eventually help McCain if it takes effect soon enough. The bailout itself will raise the buisness of independent long term mortgage brokers. This will cause a decrease in government actiity in mortgages and give more competition to the independents. This idea of less government is a Republican idea. It is essentially how McCain differs from Obama. McCain's plan involves less government while Obama wants more government.

If the effects of this bailout are not recognize immediately then it will probably help Obama. This is because it is my opinion that Obama has a better chance of winning the election. So if the effects are not realized until he would take office then he could easily take credit for it.

If McCain were to be elected then it would just strengthen his image instead.

arletap said...

Although the bailout is being promoted as some sort of housing market savior, it really doesn’t appear to be doing more than covering our financially unstable backsides. One backside it really seems to be saving is U.S. Treasury Secretary Henry Paulson and his long standing Chinese connections. Just consider how convenient it was that the bailout was announced mid-Sunday, opportunely in time for Monday’s opening of the Asian markets. Will it help the American people at all? Well, sure – as long as they’re American stockholders. The taxpayers, however, are the ones that will be covering the cost. If the bailout continues to be spun in a way that seems beneficial to the mass population, then Paulson and the Republican Party will be benefited. If not, the democrats may have gained an upper hand.

ryanh said...

I don't think this will substantially benefit either political party, although it is nice to see that the government hasn't given up completely on our floundering economy.

Vince said...

I dont think this bailout will help or hurt either party very much. However, I could see Obama using this to his advantage. Since Palins nomination Obama needs something new in the news than Palins name. When her name is said Obama is hurt and McCain is helped.

Addie said...

After reading the rest of the article, I don't think the bailout was intended to help any incumbent. The bailout will, however, help the Republican Party.

It seems like a solid political move- helping home owners, especially in the current housing market slump and saving economic and diplomatic ties with China ("10 percent of China's gross domestic product is invested with the troubled mortgage giants" http://www.npr.org/templates/story/story.php?storyId=94369826)

One of the opening paragraphs of the article make it seem like the USFG wouldn't really care about bank failures unless it had some ulterior motives. Here's what I think those motives are:

1. Keeping peace with China
2. Restoring some faith in current administration

If the FannieMae bailout has positive, noticeable effects, the McCain campaign will benefit greatly... if they choose to take advantage of it.

Also, who watched Saturday Night Live?
Tina Fey= Sarah Palin
Told you!

Alexk said...

I think the govenrment take over of the 2 morgage powerhouses doesn't really help either candidate, however I think that Obama and his supporters are pleased because it increases the size of government.

Jessie R said...

In my opinion, I believe that the Fannie Mae/ Freddie Mac bailout is going to help McCain eventually. This will make the Republican party look better; and therefore, it will help raise the opinion of the republicans which will help the McCain campaign.

shannon_o said...

I dont believe this well help any particular political party. I believe McCain and Obama both need to show support for this to help those home owners who are struggling.

Sergeant K. said...

I agree with what everyone else has been saying. i dont think that the bailout will signifigantly help either of the two parties but will instead help struggling homeowners across the country.

-Erik K.

mevanoff said...

I believe taht the bailout will not benefit any particular political party. Democrats will be pleased with the increased amount of government, and the absense of Palin's name in the news. If somehow it benefits anybody, I believe it will benefit the Democrats more than anything.

tyler l said...

I belive the bailout will not help any political party or incombents. If anything it will make the democrats happy because of the increase of government. As far as helping anyone... I dont think so.

nathanl said...

I think this will help the Republicans a bit, since the party has gotten a lot of flak for the Bush Administration's management of the economy.

jkaminski said...

I have been a proud supporter of George W. Bush throughout his majestic 8 years in office, yet this is one of those rare occasions where I find myself disappointed. The Republican party has made itself to be a party where less government involvement is better. Then someone should explain to me why GWB decided not to veto this decision. In the early 20th century when the US was still on the gold standard, the government turned to JP Morgan for a bail-out when gold was in short supply; however, this came at a time when monopoly busting was a cornerstone of the Republican-dominated early 1900's, and was therefore, very unpopular. This instance is very much the same. The bailout will hurt the GOP because it is an extremely hypocritical move by the Republicans and could be a point of emphasis for Obama during the election.

MattC said...

I believe that the bailout of Fannie Mae & Freddie Mac is no more than temporary fix to contain a massive problem not just in housing, but indeed all of America's financial system.

I think Republicans are just putting off the pain long enough until whoever wins in November must assume responsibility. Now, I'm not saying Republicans are counting on losing, but they're broad political future is limited, and so by placing the responsibility (and blame) of the bubble burst directly on that of the democrats. This probably isn't their main strategy, but I can assure that its been considered.

Kyle K said...

I going to have to agree with the majority of the previous comments and say the bailout of Fannie Mae/ Freddie Mac will not help (or hurt) either McCain or Obama. I do agree with the fact that the bail out has gotten Palin out of the media spotlight which has been hurting Obama. But as far as really making a difference I don't think we will see one because of the bailout

Addie said...

Why would the democrats be happy just because there was a case of government involvement in the economy?

Alexk said...

In 2004, after a tip from a whistle blower who was later fired, the Office of Federal Housing Enterprise Oversight (Ofheo) issued a report finding that the government-sponsored entity Fannie Mae had engaged in Enron-like accounting machinations that allowed Fannie to overstate its earnings and underestimate the risk the company faced. The accounting wizardry Fannie engaged in was designed so that Fannie could meet profit targets to maximize bonus payments to company executives like Clinton administration deputy attorney general Jamie Gorelick and Carter administration assistant director for domestic policy Franklin Raines.

For years, conservatives have been critical of how Fannie, and Freddie Mac, have leveraged their government-sponsored advantages (including exemptions from state and federal taxes, lower capital requirements, and the ability to borrow at rates well below those paid by private companies), to create a co-monopoly in the housing finance sector. When Fannie’s accounting scandal came to light in 2004, conservatives pushed hard for reforms to phase out Fannie and Freddie. Led by former Walter Mondale and Barack Obama campaign adviser James Johnson, Fannie and Freddie pushed back hard, raising millions of dollars for members of the relevant oversight committees and opening up “Partnership Offices” that funneled money into various housing projects in districts of key members of Congress.

Fannie also bought off activist groups such as the corrupt Association of Community Organizations for Reform Now (ACORN), which has been indicted, multiple times across the country, for vote fraud (Obama worked closely with ACORN as a street organizer in Chicago). Fannie’s lobbying efforts paid off as liberal politicians such as Sen. Chuck Schumer (D-N.Y.) and Rep. William Clay (D-Mo.) worked to kill any real reform of Freddie and Fannie. The Washington Post reports: “In an internal memo in 2004, Fannie Mae executive Daniel H. Mudd affirmed what the company’s critics had long contended: In the political arena, ‘we always won’ and ‘we took no prisoners.’”

Fannie was created during the New Deal to make homes more affordable for lower- and middle-income Americans. Freddie was added years later for the same purpose. Fannie and Freddie have long outlived their purpose as the market for repackaging loans as securities is now well developed. When the housing market is booming, they are not needed, and they have both gone well beyond their original mission and are now backing loans for wealthy (witness Speaker Nancy Pelosi’s continued efforts to raise the cap on the size of the loans that Fannie and Freddie can buy).
That is all from http://blog.heritage.org/2008/07/14/morning-bell-the-lefts-crony-capitilism-exposed/

I was suprised to find all that out. I never really heard anything about its corruption until I heard about it on talk radio and I decided to check it out.

Addie said...

This article never mentions why Obama pushed for Freddie Mac and Fannie may.

But if I had to guess, I think it's because Barack Obama was excited to get involved with a corrupt organization. Maybe he wanted to learn a few tricks that he could use when he would run for president in the future. Bamboozle us all.

That's my best bet.

Oh, Obama, you sly dog.


OR maybe he wanted to help an organization that could help mortgage homes to the people he was governing. Even if it was blotched with mischief, it still had the money people needed to buy their homes.

ALSO this article never states if Fannie Mae and Freddie Mac abandoned their errant ways. If they have not, then the current adminstration just did the same thing your nailing Obama for.

Addie said...

But that's a nifty blog for sure.

"Left's Crony Capitalism Exposed"

"If You Eat, Sleep, or Pray then the EPA is coming for You..."

"We Must Increase Drilling"

... biased much?


Also, they're plugging their products in their own blog posts... which I think is funny in a cutesy way.

http://blog.heritage.org/

We could throw around chewed over pseudo-facts from partisan blogs all day long.

But the fact of the matter remains that you're not going to believe anything I say if I supported all my evidence from Al Franken books and Al Gore movies.

Just like how I don't quite believe everything your blog says because it endorses Reagan as a "timeless visionary" and promotes adstinence only education.

Whether we're right or whether we're wrong, it's just the way it is.

Call me when you have unbiased sources.
Then we'll talk.

Alexk said...

i agree that the souce was biased, but that doesn't mean what was stated was false.