Arnold Kling  

Who Fails to Comprehend?

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Menzie Chinn writes,


I would have hoped to have more comprehension from a candidate at a time when the estimate of a resulting $300 billion taxpayer liability is viewed as plausible.

He is referring to Republican VP candidate Sarah Palin's suggestion that Freddie Mac and Fannie Mae have gotten too big and need to be shrunk.

Far be it from me to defend Palin's wisdom, but I don't see what's wrong with what she is saying. On the other hand, this is hard for me to fathom.


In the House, Mr. Frank, the chairman of the House Financial Services Committee, criticized the administration’s attempt to shrink the companies. He staunchly defended the companies’ ability to channel some of their profits from conventional mortgage financing to subsidize the construction of affordable rental housing and lower borrowing costs for low-income home buyers.

I'm sure that Congressman Frank is aware that we have an agency, called the Federal Housing Administration (FHA), that serves the function of providing subsidized loans to borrowers who cannot obtain mortgages in the private market. We have other programs that subsidize the construction of homes.

In the United States, we have a huge inventory of unoccupied homes. We have trillions of dollars of mortgage debt. We need a government-sponsored enterprises to encourage more homebuilding and more debt about as much as we need a government enterprise to stimulate teenagers to want more sex.


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COMMENTS (8 to date)
David writes:

Barney Frank should be aware of both the existence of FHA and also the downside of federal intervention in the mortgage market. He has been a cheerleader for government intervention in the housing market since he participated in the "affordable housing" movement that resulted in the ethnic cleansing of Boston's urban Jewish neighborhoods in the late '60s.

Brad Hutchings writes:

On Palin and wisdom... She seems to have a lot better instincts than the experts who got us into this problem. Credit where it's due. She seems brash enough to challenge the basis of the debate, something people with Harvard and Yale degrees haven't done. How come she's asking the questions that they haven't when they are the smart ones?

Chuck writes:

I think the criticism of Palin isn't that she said Frannie is too big. I think the criticism is that she said they "had gotten too big and too expensive to taxpayers" implying that she thought they had been costing taxpayers money before they were taken over/failed/unprivatized/whatever.

Tom Hanna writes:

I find it ironic that someone would use the $300 billion figure to criticize Palin's comment that the GSEs were becoming too expensive to taxpayers. What would be too expensive? $300 billion here, $300 billion there, pretty soon you're talking real money.

Steve Roth writes:

Hey, I'm one who's actually willing to say that I think government should be bigger (though much smaller in some areas), and taxes should be higher. I find the Palin nomination and candidacy to be terrifying.

But I can't see a single thing wrong with Palin's comment about Frannie. It displays no ignorance, as far as I can tell. All it displays is the kind of opinion one might form by reading the newspaper.

I do wish the left would stop making itself look stupid by going after these kind of red herrings. I mean, it is such a target-rich environment...

assman writes:

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John Thacker writes:

"I think the criticism of Palin isn't that she said Frannie is too big. I think the criticism is that she said they "had gotten too big and too expensive to taxpayers" implying that she thought they had been costing taxpayers money before they were taken over/failed/unprivatized/whatever."

Yeah, using the same logic that implies that an ARM only costs you money once the rate resets, or that we need do absolutely nothing about Medicare or Social Security until they're actually in deficit because future obligations don't count.

There was a blank check given to Fannie and Freddie, there was always a chance it was going to come due. They were going to be nationalized if it did, because, contra Bryan, the consequences really would be horrendous. They should've been shrunk earlier, before everything came due, but few wanted to do so then. (Especially not Rep. Frank.)

Fannie and Freddie benefited from lower borrowing costs because of the implicit guarantee. Plenty of borrowers benefited as well as a result, but it also meant that loans were made that wouldn't have been otherwise. (Even when Fannie and Freddie didn't make mortgage loans directly, the fact that they would buy them in mortgage-backed securities using their cheaper borrowing costs still encouraged subprime lending.)

Debts are incurred when the promise is made, not when they come due. No wonder we won't do anything about Medicare or Social Security either.

W.C. Varones writes:

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