Will's Mendacious Defense Of Republicanism

Matt Yglesias catches George Will blaming LBJ (for privatizing Fannie and Freddie in 1968(!!)) for the Wall Street credit crisis actually caused by the reckless, feckless, rampant Republicanism of the Bush years (the same philosophy McCain promises for the next 4 years.) I was struck by this bit of mendaciousness from Will:

The rising generation of thoughtful Republicans was represented on both sides of Monday's vote. Virginia's Eric Cantor, 45, and Wisconsin's Paul Ryan, 38, supported the legislation because they had helped to achieve substantial improvements in it, such as requiring financial institutions to help finance their bailout, giving the Treasury potentially valuable equity in firms revived by public funds . . .

(Emphasis supplied.) To put it bluntly, Will is lying. That was a Democratic initiative contained in the Dodd bill. The "thoughtful Republican idea" that Cantor wanted and got was the ludicrous government insurance plan that is simply a joke. No reasonable premium could be charged that would make sense or help in this crisis. The "thoughtful" Republicans OPPOSE the government equity plan and wanted the equity plan out. George Will is either ill informed or lying or both.

By Big Tent Democrat, speaking for me only

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    What to think of Will's (5.00 / 1) (#1)
    by oculus on Wed Oct 01, 2008 at 12:49:14 PM EST
    opinions?  He says choosing Palin was a mistake.  

    More lies (5.00 / 1) (#2)
    by Stellaaa on Wed Oct 01, 2008 at 12:59:12 PM EST
    Suppose there had never been implicit government backing of Fannie Mae and Freddie Mac. Better yet, suppose those two had never existed -- there was homeownership before them, just not at a level that the government thought proper. Absent Fannie and Freddie -- absent government manipulation of the housing market -- would there have developed the excessive diversion of capital into the housing stock?

    The reason for FNMA and Freddie Mac was for the Banks to free up their "resources" to make more loans and the building industry Homeownership is an indirect benefit.  Add to this the mortgage interest deduction, which encourages the interest payments to be high, that is another subsidy to the lending,building and real estate industries.  

    I see your point (none / 0) (#11)
    by Prana on Wed Oct 01, 2008 at 02:51:08 PM EST
    but don't know that I totally agree. Fannie and Freddie were aimed at the buyers of homes and sure industry benefited because when people buy more homes someone has to build them. One can even get a conforming construction loan and completley bypass the builder by building the home themselves and save a ton of money by eliminating the builders profit.

    As for "encourages the interest payments to be high", that is not really true. All amortized loans, your auto, credit card, department store charge cards, etc work the same way RE loans do. You pay interest on the unpaid balance, that is the way loans work, and is as it should be. Of course there is nothing in the loan to stop your from paying more each month and cutting the total interest you pay over the life of the loan.

    As for the Insurance mentioned in the main diary entry I disagree. Effectively what the government and all who voted for the bailout bill are doing is providing insurance after the fact. Instead of providing insurance before the house burns down they are providing it after the house as burned down to use a metaphor.

    Any premium, be it a dollar or hundreds of thousands of dollars, would be appropriate considering the alternative of Putting out 700 billion cash plus the interest we will pay to borrow the money to give it away in return for a burnt house that may or may not be reconstructible.

    If the premium was a ridiculous $1 what would happen is that the securities (insured for 700B) would no longer be a liabilities because they would be guaranteed by the government just as T-bills are. That means the banks balance sheets could in some manner count them as an asset instead of a liability, liabilities on the books being the main  problem. When you move them from liability to assets on the balance sheet it would open up the credit markets which is the objective.

    Worse case scenario if all the insured securities eventually went bust then we would pay out AT A LATTER DATE the 700 billion instead of paying it upfront. It is unlikely that all of then would go bust and the banks would have every personal incentive to do what they could to hang on to them and increase their current value and have them produce continuous cash flow instead of having them be dead weight and getting a partial net worth payout down the road from the insurance

    In summary your insure for less than original value - you don't pay out 700B + interest on the borrowed money from China - you give the banks incentive to make the securities whole and produce cash flow - The nation does not go into further debt and you still have money come 2009 for the programs that we all want. The current alternative is far worse.


    Estimates Are... (none / 0) (#13)
    by santarita on Wed Oct 01, 2008 at 03:06:56 PM EST
    that absent a rise in the price of housing, there is an estimated $1.3 trillion in losses to be recognized by mortgage lenders.  (Discussion of this can be found at Calculated Risk on September 29th.)

    So worst case scenario is that the taxpayers make good on the insurance to the tune of $1.3 trillion.  How high should the insurance premium be for that kind of risk?  


    Well right now (none / 0) (#15)
    by Prana on Wed Oct 01, 2008 at 03:45:29 PM EST
    the premium is 700 billion on an undisclosed dollar amount of securities and the taxpayer is paying the premium.

    So any premium we get the banks to pay is more than they are paying now - and is 700 billion less than what we are being asked to pay upfront. Agreed?

    As for the $1.3 trillion, that is not a figure that the Treasury is asking us to cover at this point so for me it is just speculation and is not a tangible figure we have to be concerned about at this point in time.


    Actually If the Paulson Proposal Works... (none / 0) (#21)
    by santarita on Wed Oct 01, 2008 at 05:20:43 PM EST
    the $700 billion is an investment that would mean nothing out of pocket for the taxpayer with the possibility of a substantial profit.

    The insurance on the other hand is a loser from the onset.


    An investment? (none / 0) (#23)
    by Prana on Wed Oct 01, 2008 at 05:44:28 PM EST
    Nothing out of pocket?

    Yeah an investment in securities that as of now are worthless because if they were worth something the banks and Wall Street (Pasulson's friends) would not be wanting to "bail them out" bu buying them.

    And 700 Billion is not considered out of pocket given that there is not even a time frame when any, if any, of the money could be recouped through the sale of them likely back to the people we bought them from. You gotta be kidding.

    I won't even respond to you insurance comment because it is a comment void of any argument other that your opinion which is based by your post on nothing but your opinion.

    Insurance could work as I posted and the main reason some people dismiss it without any real argument and/or understanding of it is because (a) It's a Republican idea (and Obama says Republicans do have good ideas) and (b) those dismissing it have no idea or understanding of how it would work  and could work. They would rather pony up 700 Billion based on what Bush and Paulson are selling...

    Sight unseen. LOL.


    Insurance Could Work If... (none / 0) (#24)
    by santarita on Wed Oct 01, 2008 at 06:09:36 PM EST
    the securities clogging the system were written down to say $.20 or $.30 on the dollar and insurance was written on the lesser amount.  This, of course, would lead to capitalization issues which could be rectified by the government capitalizing the institutions through subordinated debt or through the loan plus equity kicker as done in AIG.  

    Krugman explained how the taxpayer is not out of pocket on the bailout and if you are interested the article was in the NY Times last week. Or at least not out of pocket until and unless the Paulson Plan doesn't work.  

    The Plan proposed by the House Reps did not contain any required write down of the troubled assets.  This just guaranties loss down the road.  The House Republicans didn't come up with any explanation of how eliminating the capital gains tax would provide an immediate solution.  

    The Paulson Plan is a stopgap measure.  Arguably all that it does is restore a little confidence in the markets and financial institutions for long enough to keep credit moving.  Maybe it works, maybe it doesn't.  There are other better plans out there.

    Enjoy your laugh but why don't you go check out Krugman's blog while you are laughing.


    As far as I know (none / 0) (#26)
    by Prana on Wed Oct 01, 2008 at 06:40:02 PM EST
    I have not read that there is any write-down in anyones plan including the Bush/Paulson Plan that most Democrats voted for in the House so why point out the Republicans don't include a write-down when neither does the competing plan? That's not a very persuasive argument.

    In fact no one has told us exactly what we would get or what the value would be whether we purchased the securities or insured them. THAT IS A BIG PROBLEM FOR ME. At least tell me what the securities were worth at face value when they were written and worth full value. That information is readily available but no one is saying. Why?

    As for Krugman I didn't read that particular article. But if he says that borrowing 700 billion + interest which would add to the national debt and make our borrowing a bit tougher from foreign entities is not out of pocket then he is stretching the truth a bit. Anytime you impede your ability to borrow it is just as bad as spending what you do have. And of course his caveat of 'unless' the Paulson Plan doesn't work is a big unknown 'unless'. Sounds like he is trying to dress this pig up to me. Krugman like anyone is not always right and in this case he is working in the dark as much as anyone. I don't buy his roll of the dice.

    I'd much rather defer the payment of the 700 Billion through insurance than pay it upfront. That would help prop up the bank's balance sheets and open up the credit markets - which is the objective - and it would give everyone time to unwind what is actually there and see what is recoverable and what is not and price each appropriately. That is a sane approach. A virtual blank check on assets unknown with borrowed money is insane.


    What are you talking about? (none / 0) (#14)
    by Stellaaa on Wed Oct 01, 2008 at 03:40:05 PM EST
    FNMA and Freddie was and is a secondary market designed to buy the loans from the banks so that they can make more loans and not have the loans in their portfolios.  

    This is not my point, that is why they were developed.  Homeownership is a secondary goal.  The building industry is always a measure of our economy.  "Housing starts" etc.  This is how Bush fueled the alleged economic growth these last 8 years.

    Homeownership is a biproduct.  The mail goal was the banking and building industries.  


    I understand (none / 0) (#18)
    by Prana on Wed Oct 01, 2008 at 03:59:05 PM EST
    I know exactly what Fannie and Freddie do. My point is that without a home purchase FIRST, or the consumer demand for a home to purchase, there is no loan, and there is no building of a home. So primarily Fannie and Freddie facilitated the consumer demand to purchase a home. So I disagree that home ownership was a secondary goal. I don't make hamburgers to profit the meat suppliers or bun makers. I make hamburgers because first and foremost the consumer wants to spend their money to eat them. Then the meat suppliers and bun makers provide what it is the consumer is demanding. Capitalism is consumer driven.

    Banks don't loan Jennie Craig money to open and profit from a business and then people decide to get fat - people get fat first and then that creates the demand for a business like Jennie Craig. Homeownership first - suppliers second. That is basic consumer driven Capitalism.


    Will is slime; remember the 1980 (5.00 / 1) (#6)
    by magnetics on Wed Oct 01, 2008 at 02:07:52 PM EST
    campaign? When he helped rehearse Reagan for the presidential debate, by playing the part of Carter, using the Carter's own briefing book, which had been stolen and delivered to the Reagan campaign.

    Why anyone pays this partisan shill for his written opinion is beyond me.

    Cantor is the guy who held up (5.00 / 1) (#7)
    by inclusiveheart on Wed Oct 01, 2008 at 02:29:26 PM EST
    of what he said was Pelosi's speech and claimed that the words she uttered on the floor of the House upset the GOP membership so much that they turned against the bill.

    Thoughtful is not a word that I would use to describe Cantor.  Disengenous would be.

    George Will (5.00 / 1) (#8)
    by Ga6thDem on Wed Oct 01, 2008 at 02:29:54 PM EST
    blaming someone else for the failure of conservatism? Who woulda thunk it?

    Personally... (5.00 / 2) (#9)
    by Brillo on Wed Oct 01, 2008 at 02:35:03 PM EST
    I find their scapegoating of various minority groups and low income people for this mess to be even more maddening.  

    Strawman (none / 0) (#16)
    by Wile ECoyote on Wed Oct 01, 2008 at 03:49:42 PM EST
    the problem is the gov't regulations that forced banks to lend to people to buy in way over their heads.

    What regulations? (none / 0) (#19)
    by Steve M on Wed Oct 01, 2008 at 04:33:00 PM EST
    The default rate for CRA loans is less than the default rate for mortgages in general.  What regulations are you talking about?

    Link (none / 0) (#27)
    by Wile ECoyote on Wed Oct 01, 2008 at 07:47:17 PM EST

    well (none / 0) (#3)
    by connecticut yankee on Wed Oct 01, 2008 at 01:15:06 PM EST
    Well, he's an ideologue so finding some way to blame democrats for the earth's curvature is his bread and butter.

    OT but here is Will bashing Newt's defense of Palin behind the scenes at ABC.


    Not directly on topic - The Crash Course (none / 0) (#4)
    by Romberry on Wed Oct 01, 2008 at 01:15:48 PM EST
    BTD, I've been trying to get the word out about The Crash Course because I think that it can really help people understand where we are, how it is we got here and why the "bailout" won't work.

    The Crash Course, or more properly the Crash Course segment on bubbles, was recommended and linked by DNC Treasurer Andrew Tobias in one of his columns a few months back.

    If you want to wrap your mind around the bursting of the housing and credit bubbles and what it all means, I can't offer a better suggestion than to spend the 14 minutes it takes to view the Crash Course segment on bubbles. And after that, I encourage you to review the entire course. The price (Free!) is right and all it takes is a bit of your time.

    I love the Crash Course! (none / 0) (#5)
    by Demi Moaned on Wed Oct 01, 2008 at 01:56:08 PM EST
    A commenter at DailyKos provided at link to it a few weeks back and I pretty much devoured it. The presentations are both clear and concise. What he says seems pretty convincing, but I'm interested to get some outside opinions.

    In an nutshell, he says that our monetary system is backed solely by debt, therefore debt must increase exponentially over time in order for growth to occur, with the inevitable endgame being hyperinflation followed by a collapse of the monetary system.

    A corollary of this is that since this monetary system is a recent innovation no one really understands all the complexities of how it works, much less how to fundamentally fix it.

    The end (when it comes) will happen too quickly for anyone to do anything about it, which is the main reason I don't think we're quite at the end yet.


    Today Robert Scherer, who hates Bill Clinton (none / 0) (#10)
    by hairspray on Wed Oct 01, 2008 at 02:47:08 PM EST
    wrote more on Clinton's culpabiliy in this mess than anyone elses.  He attacks BC's explanation on Jon Stewart's show about the origins of the problem.  But Bill didn't absolve himself at all. All BC said was There was plenty of money around in the late '90's and it had few places to go except into real estate. And because of this, the Dems wanted to expand home ownership to first time buyers and lower income people so they expanded CRA. That sounds okay to me, especially since it wasn't until after 2002 that the oversight became so lax and the Bushies let the "hidden hand of the market" run the business. Then Scherer says that Obama should stay focused as a community organizer and get us out of this mess by helping the homeowner first.  Funny I thought it was the Clintons who were pushing the HOLC.  Scherer is so far gone he can't put a logical piece together.

    Square that Will with THIS Will, BTD (none / 0) (#17)
    by Dadler on Wed Oct 01, 2008 at 03:56:51 PM EST
    Will in full anti-war splendor, calling it a fiasco repeatedly, ripping Cheney.

    It's almost like an alien took over his body for a few hours.

    I'd bet (none / 0) (#20)
    by cal1942 on Wed Oct 01, 2008 at 04:36:36 PM EST
    on both. Misinformed AND lying.

    to put it bluntly, (none / 0) (#22)
    by cpinva on Wed Oct 01, 2008 at 05:22:15 PM EST
    dr. will would do well to stick to baseball, a subject about which he appears to at least have some knowledge.

    years ago, i realized that dr. will's ideology had overtaken whatever he learned about economics in school, and driven into long-term hiding. he's learned nothing in the intervening years since the reagan administration's infamous "trickle-down" theory was proved to be exactly that, and left us with a lovely, huge increase in the national debt.

    anything dr. will says, beyond baseball, should be ignored by any thinking person.

    Why Dr. Will? (none / 0) (#25)
    by sallywally on Wed Oct 01, 2008 at 06:12:36 PM EST
    Does he have a PhD or something?