How much power do we give to the unelected?

The direction of the Bush Bailout - and most especially the insistence that it be passed without amendment - troubles me more by the day. There is first the question of the wisdom of the bailout itself, but I am willing to accept a general idea of it as the tourniquet to staunch the bleeding. But second is the way it is being handled - drawing yet more power into the Executive Branch. George Will has up a new column which succinctly summarizes the main problems with the current process.

Rep. Barney Frank, who chairs the House Financial Services Committee, says: "No one in a democracy, unelected, should have $800 billion to spend as he sees fit. ... That's not the way to run a democracy." Frank is properly punctilious about a fundamental principle of American governance -- legislative control of public funds. But a fundamental principle of American political economy is that no elected person should exercise virtually unfettered discretion with such sums of taxpayers' money.

Are we really ready to entrust this level of social control to the Bush administration and the Fed? I am not sure I'd trust this much unchecked power in the hands of my best friend or even my own mother. How much less an unelected bureaucrat?

Bush: We like debt, we'll take it ALL!

We've all seen it. You have a friend (or a self) who is overextended in debt. They have maxxed out their credit cards. They have used up every friendship and familial connection to borrow money. They are often seen digging thru other people's sofas looking for enough cash to buy a 99 cent cheeseburger for dinner. (Okay, that last one really only applies to college students.) Anyway, when a friend finds themselves in such dire straights, what do you do? You sit them down, make them face the problem, and work out a logical plan for repayment, including a strict budget and no credit, right?

Well, not if you are the American Federal government. If you are the Bush Administration, you instead take on all that debt yourself and let the friend go out and start racking up new debt. Or rather, you take all that debt and put it onto someone else who is barely getting by but has been paying their bills (the American taxpayer).

Sigh. Has it really come to this? Will it be under a supposedly Republican president that we see government essentially nationalizing the financial system by buying up insurance companies and bank debt? Does anyone think Barack Obama had planned anything so overtly socialist as this for this first term? I went to bed last night under GWB, and I woke up this morning under FDR.

Can anyone talk me out of seeing it this way?

Freddie Mac and Fannie Mae to be seized?

After spending billions bailing out Bear Stearns, it appears that Freddie Mac and Fannie Mae may be placed in a conservatorship by the government in order to safeguard the mortgages they own. This would wipe out the shareholders for both corporations. Typically, both companies have been seen as "safe" stocks, because the companies were guaranteed by the government. This is sure to send shock-waves through the economy, though additional insurance behind mortgages will probably be a good thing in the long-term.

Fannie Mae Meltdown Explained

If you are a normal person, you may have seen all the headlines about "Fannie Mae" and "Freddie Mac" over the weekend and wondered why the economy cares about two old people with weird names. But these are both quasi-government lending companies which are on the verge of being officially taken over by the Federal government. This article attempts to explain the crisis in Fannie Mae in a way that a layman can understand.

By the time I showed up in the mid-1990’s, Fannie Mae had become one of the largest buyers of its own securities. Its stock was up over 40X from it’s 1980s nadir and it seemed as though the single biggest problem it had was deciding on how much money it wanted to make. This was a bigger problem than you might imagine because as a quasi-government agency, and a constant political football, Fannie Mae realized it couldn’t be seen to be abusing its market position. So rather than go crazy and buy every mortgage security in sight, Fannie Mae just settled on charting a nice predictable upward growth in earnings fueled largely by buying an ever increasing share of its own securities.

Now a normal private company could not pursue this strategy because as it issued more and more debt to fund the golden goose, the yields on the incremental debt would start to increase to the point where the strategy no longer made sense. But Fannie Mae was different. Because of the implicit government guarantee of its debt, Fannie could issue incremental debt with little or no regard to its existing debt load because everyone assumed the federal government would backstop the debt.

The more I hear, the more I think the operative term in the financial meltdown is "hubris". So many people doing so many stupid things with the assumption they'd be able to cash out before it collapsed.