Second Presidential Debate
I thought both candidates did OK, but neither did much to wow anybody. Obama did better on the question about why the bailout helps us and not just those greedy fatcats on Wall Street. McCain did better on the cause of the crisis, rightly focusing in on Fannie and Freddie (and his past efforts to rein in the same) while Obama blamed everything on free enterprise. And no one said a word about Bill Ayers, Jeremiah Wright or even the Keating 3 5.
Bottom line: someone won, I think. At this stage, that’s an Obama win by default.
October 8th, 2008 at 10:46 am
Actually, on the causes of the financial crisis, they were both right, which made them both wrong. They just each chose to focus on one specific cause, both of which were factors, but neither of which was the whole cause by any stretch. They grossly oversimplified. In fact, subprime lending, the repeal of Glass-Steagall, and lousy monetary policy over the last decade are all significant contributors. Anyone who tries to point the finger of blame at just one of those is missing the big picture.
I will say this, however: there was an awful lot of subprime lending activity that had nothing whatsoever to do with Fannie and Freddie (cf., Countrywide).
I agree that Obama won, albeit not by a wide margin, as I wrote here (shameless self-promotion).
October 8th, 2008 at 11:07 am
Not sure why you think keeping Glass-Steagal would have saved anything. To the extent GLB had anything to do with the current mess, it’s the reason things aren’t even worse than they are. Do you really think Countrywide and WaMu would have fared *better* if all their eggs had been in one handbasket?
You’ll have to elaborate as to why you think the lending policies of Countrywide, or any other major lender who sold loans to Freddie and Fannie on a regular basis, had nothing to do with Freddie and Fannie. At a minimum, that argument seems a tad … counterintuitive.
October 8th, 2008 at 3:58 pm
With Glass-Steagall in effect, investment banks were required to be separate from commercial banks. Commercial banks are the ones who make mortgage loans. Investment banks are the ones who buy MBS (mortgage backed securities), and package them in with other investment vehicles. Without that wall of separation, there’s an inherent conflict of interest: banks could disguise their questionable mortgages by bundling them through their investment bank arms. If the investment bank is on its own, it’s going to think twice about buying and bundling securities backed by somebody else’s crappy mortgages.
I’m open to persuasion on the Fannie/Freddie thing, and I really haven’t seen a good, detailed analysis of this, but my understanding is that most of the really irresponsible and predatory subprime lending practices (low teasers with exorbitant ARM rates later, interest-only loans, etc.) were done not by Fannie and Freddie, but by truly private enterprise organizations like Countrywide, “Quicken Loans,” etc. And my understanding of the government’s role in this is that they encouraged Fannie and Freddie to lend to sub-prime candidates, but there was nothing even approaching a mandate that they engage in the kinds of predatory practices I just described.
Finally, any attempts to pin this all on one party or the other are clearly bogus. There’s plenty of guilt to go around. Glass-Stegall was repealed by a wide bipartisan margin and the act repealing it was signed by Clinton. And while the Democrats were pushing for Fannie and Freddie to expand home ownership, the Republicans were largely right there with them, touting the grand benefits of the “ownership society.”
October 9th, 2008 at 7:43 am
Banking rules are pretty strict. An owner of one investment bank and one commercial bank can’t act willy-nilly to benefit one institution at the expense of the other, any more than AIG’s could pull assets from its solvent insurers to stay afloat. If you have any evidence of investment banks issuing bad securities they couldn’t sell to benefit their affiliated commercial banks, I’d like to see it. Otherwise, I’m sticking to the common sense view that investment banks created stinky investments they could and did sell to unrelated third parties, thereby benefiting the investment bank itself as much as the commercial bank. Lehman Bros., AFAIK, was Glass-Steagall-compliant when it went under.
As to Freddie and Fannie, the general rule is that lenders issued loans that they knew F&F would buy. There may have been some subprimes that F&F wouldn’t buy but lenders issued anyway, but I’m pretty sure those were the exception, not the rule.