Tuesday, July 15, 2008

Krugboy Totally Misunderstands Mortgage Mess---is this moron an Econ Prof?

Mickey Kaus takes Marxist ninny OpEd flunkie Paul Krugboy to school with what amounts to verbal abuse kindly administered. Every pol insider in DC has long known that the two FMs have been Dem piggybanks for ultra-left politicos like FNU Franklin & Jamie Gorelick, to beef up their payrolls while they idled between Dem administrations---Johnson of the VP vetting farce was actually CEO of Target [& that's where the MSM attacks on Wal-Mart originated, as an agitpreppie attack on a true capitalist enterprise with conservative owners] & engineered Mondale's disastrous loss in '84 as his nat'l campaign mgr. Then Johnson went to the piggy bank to get grossly inflated salaries as a corrupt sluicer of monies to slush funds on the left. But here's Mickey on Krugboy:

Curious passage in Paul Krugman's half-defense of Fannie Mae today:
But here's the thing: Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago, an explosion that dwarfed the S.& L. fiasco. In fact, Fannie and Freddie, after growing rapidly in the 1990s, largely faded from the scene during the height of the housing bubble.
Partly that's because regulators, responding to accounting scandals at the companies, placed temporary restraints on both Fannie and Freddie that curtailed their lending just as housing prices were really taking off. Also, they didn't do any subprime lending, because they can't.

Huh? Does Krugman not know that Fannie Mae was a huge buyer of subprime mortgages, including mortgages from Angelo Mozilo's Countrywide? David Smith's eerily prescient AHI blog noted that Fannie Mae and Freddie Mac reportedly bought $35 billion in subprimes in the first quarter of 2007 alone.
On his blog, Krugman casts the Fannie problem in ideological terms:
What you need to know here is that the right — the WSJ editorial page, Heritage, etc. — hates, hates, hates Fannie and Freddie. Why? Because they don't want quasi-public entities competing with Angelo Mozilo.

"Huh?" again. Conn Carroll responds:

The problem is that Fannie was Countrywide's No. 1 enabler. ... When he was CEO of Fannie, former Barack Obama campaign adviser Jim Johnson worked personally with Mozilo to streamline the two companies' business relationship.
Could Mozilo have done his subprime thing without Johnson and Fannie Mae as a backup to purchase his junky mortgages?
P.S.: Krugman suggests Fannie's problem is that it wasn't a true government agency, but rather a hybrid public/private partnership that privatized profits and socialized losses.
Liberals like Fannie the way it was for the first 30 years — a purely public enterprise.
Good point--according to Smith Fannie seems to have been using all sorts of tricks to turn profits using its implicit government credit guarantee. But if Fannie had been a pure government enterprise, would it really have refrained from supporting Mozilo-style subprime lending? I'm not so sure. Providing "affordable housing" was a policy crusade of Johnson, among others, and a popular goal on Capitol Hill (where Mozilo had done so much to ensure that his "friends" would be receptive to his particular method of pursuing affordability).
P.P.S.: Krugman also writes, boldly:
You could say that the Fannie-Freddie experience shows that regulation works.

You could say that--unless you read the remainder of Krugman's column, which notes the inadequate capital requirements imposed on Fannie-Freddie because
the companies' management bought off the political process, systematically hiring influential figures from both parties.
P.P.P.S.: Is this risk of corruption any less with a) "purely public enterprise" than with b) a public-private hybrid like Fannie Mae or c) a purely private enterprise (like, say, the Blackstone Group)? Interesting question. I would think well-connected liberal operatives like Johnson would be capable of at least perverting a regulatory regime even if they headed a 100% federal, civil-servicized Fannie Mae. (Most "regulation" is in category (c) of course, where the risk of corruption seems somehow undiminished by the triumphant "Fannie-Freddie experience.") ... 2:00 P.M.
Didn't subprime poster villain Angelo Mozilo do Barack Obama a big favor by compromising Obama's initial VP vetter, Jim Johnson, with favorable loans, causing Johnson to step down from his position? How bad would today's headlines be for Obama if Fannie Mae fatcat Johnson was still heading up his vice-presidential search effort? ... 10:45 P.M.

Socialism sux, and if the US stumbles into the EU-nuch childhood disease of Marxist economics, the USA will terminate its economic hegemony [currently still 25% of world goods & services, though The Economist had it at 28% earlier this year].

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