Yes, the conservatorship of Fannie and Freddie was necessary. The only entity in the world that owes more money than Fannie and Freddie combined is -- as you can easily guess -- the government of the United States of America. If Fannie and Freddie defaulted on their debts, it would cause worldwide economic meltdown as credit dried up completely.
The vast majority of Americans have no clue what the crisis is all about, and explaining it to them is next to impossible. Most people are economic illiterates. Use words like "securitization" or "derivative" and watch their eyes glaze over.
Barack Obama and Joseph Biden understand what's happening at Fannie and Freddie. John McCain and Sarah Palin do not. The unfortunate outcome is that McCain and Palin find it much easier to talk to America about Fannie and Freddie than Obama and Biden do. The Republican candidates can spout sound bites that really have no bearing on the severity of the problem, while the Democrats seem to feel obliged to say things that make economic sense -- and then watch the eyes glaze over.
Please! Can't some speechwriter compose a few populist sounding platitudes for them to produce when the cameras are running? How about, "When we reorganize Fannie and Freddie, we'll make sure that taxpayer money is safe again, and not being used to bail out rich investors and overpaid executives; we'll make sure that middle-class families can realize the dream of home ownership without fear of finding themselves out on the streets; and we'll end the irresponsible Republican policies that caused the mess we're in today."
Okay, that's just a statement of goals -- not even policy, much less a plan for policy implementation. So what. The hard stuff can go into the interviews by the New York Times and the Wall Street Journal -- it doesn't have to be on the evening news.
Speaking of the hard stuff -- the take-over of Fannie and Freddie got me to thinking, again, about those not-too-serious ideas I was playing with last month for putting real pressure on Russia. Well, this time, I might be just a little more serious.
One of the biggest problems with Fannie and Freddie is their enormous size -- too large to fail. The obvious solution to that problem is to split the monsters into a number of smaller companies, similar to the way AT&T was split into the "Baby Bells" back in the 1980s. The problem with that solution, though, is figuring out how to divide the immense debt Fannie and Freddie have incurred.
Well, here's my "little idea." Just as AT&T was divided regionally, why not divide the mortgage giants' debts regionally? One large company might inherit all the debt owed to China; another could inherit all the debt owed to investors in the European Union. Debts owed to Russia's sovereign wealth fund and other Russian investors could be assigned to yet another company; perhaps the debts owed to the various sovereign wealth funds of the Persian Gulf area could be grouped together, and assigned to yet another spin-off.
I'm sure that there are quite a few economists and bankers with the appropriate qualifications (including sense of humor) to enjoy slotting Japan, Indonesia, Mexico, Brazil, Venezuela, and all the others into amusing and entertaining categories that might make sense. As for American investors, I'd hope that the pension funds might be kept separate from the hedge funds, and that taxpayer bailout money be reserved for the former.
Well, let's see. Although we couldn't keep the debts incurred by the various companies sorted so neatly, initially, at least, the sorting could be useful -- especially when all of them are depending on a government safety net to keep them solvent. Unlike Fannie and Freddie, though, none of the new companies would be "too big to fail." If some foreign country were being especially uncooperative, the Fannie/Freddie successor company that owed that country's sovereign wealth fund a ton of money just might find widening holes in its safety net.
Okay, it's just a "little idea," and probably not feasible. Just the same, the greatest debtor in the history of the world ought to be able to find some way to leverage that great distinction for its own good.