the visible hand

it is the theory which decides what can be observed – einstein

hair of the dog

Posted by ecoshift on August 4, 2008

Looks like I’m not the only one who thinks the American taxpayer should appoint a new agent to negotiate for its interests in the upcoming financial industry bailouts….

Housing bill | A hair of the dog |
Jul 31st 2008
From The Economist print edition

Congress has been too lenient on Fannie Mae and Freddie Mac

IT IS hard to deal with an alcoholic. But most experts would agree that the answer is not to leave your credit card behind the bar, persuade the pub landlord to stay open till dawn and leave the inebriate to get on with it. Sadly that is how the American Congress, in its new housing bill, is treating those troubled mortgage groups, Fannie Mae and Freddie Mac.

A rescue of the pair was inevitable. With some $5.2 trillion of debt owned or guaranteed by the duo, their collapse could have ushered in financial catastrophe. Nor could the government close Fannie and Freddie to new business and wind down their old operations. Without them, the mortgage market in America would shut.

But imagine that Fannie and Freddie had turned for financial support to Hank Paulson not as treasury secretary but in his old incarnation as head of Goldman Sachs. Goldman would have insisted that the companies paid a high price: shareholders would probably have been wiped out. Just look at the deal that Lone Star, a private-equity firm, has struck with Merrill Lynch to buy the latter’s dodgy mortgage-related assets: not only is Lone Star paying a mere 22 cents on the dollar, Merrill is lending it most of the purchase money. By comparison, the federal government’s negotiating skills look more like those of Donald Duck than of Donald Trump.


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