Day: September 28, 2008

So after John McCain went to DC last week to collect his credit for the prior deal (and certainly without having one of his own), the news today is that there is apparently a new framework for a new bailout deal:

• The total is still $700 billion, but is structured to allocate in 3 phases — $300 billion now, $100 billion at the President’s discretion, $350 billion only with Congressional approval;
• Institutions selling assets to the government have to issue warrants, providing taxpayers an asset stake as a way to get back some of the bailout funds;
• They expanded the pool of institutions who could participate, including small banks, pension funds, local governments
• Executive Golden Parachutes are cut for institutions that get bailout funds;
• An oversight board is created and that board has some accountability to and oversight by Congress;
• Judicial review is preserved;
• Private insurance funded by the banks to insure MBS;
• The Government would somehow renegotiate bad mortgages that it owns either directly of via the securities.

“The last six months have made it abundantly clear that voluntary regulation does not work.”

-Christopher Cox, Chairman Securities and Exchange Commission in NYT last Friday

More from the same article:
“The chairman of the Securities and Exchange Commission, a longtime proponent of deregulation, acknowledged on Friday that failures in a voluntary supervision program for Wall Street’s largest investment banks had contributed to the global financial crisis, and he abruptly shut the program down . . .

John McCain has been talking this bit of idiocy up ever since his call to fire the Chairman of the SEC landed like a dud. It has been taken up by the wingnut media for dissemination to their aggrieved and credulous constituencies. Let’s take a look at why this talking point is complete bull and why they think this is useful to them. This is going to be long (go get your cocktail now) — but unlike any wingnut talking point, there is plenty of data along the way here. We’ll start with this graph from Brad Delong:

Frankly, this ought to be the end of the discussion. Using data from the Federal Reserve Board, you can see who was writing mortgages throughout the life of the housing bubble though the bubble bursting. And the conforming mortgages that Fannie and Freddie could acquire became a smaller part of the total mortgage market share starting in 2002, absolutely cratered (for a combination of reasons — market, political, structural (their accounting scandal) in 2004, 2005 and started ramping back up as the bubble began to pop. The giant spike at the end is when the Administration (aided and abetted by Congress) rejiggered the conforming limits of these GSEs to get them to take on jumbo loans in an impotent attempt to put their fingers in the dike.