DISQUS

I agree wholeheartedly with you Jim. One reason why Australia has avoided much of the economic mess that the rest of us have experienced is that, unlike the US, lenders in that country are allowed to go after borrowers for foreclosure losses.

So you have a good balance between lenders, who want to make sure their borrowers have good credit, and the borrowers who don't want to end up in court because they tried to walk away from a mortgage they couldn't afford. In the past, I think lenders have done a really good job of advising clients on what they could and could not afford, which is why the market works best when we keep politicians out of the process.

I think your points are all good ones. Thanks for the comment.

That is funny. And tempting too. :-)

Regards,

Pat

You're correct about Fannie and Freddie being in conservatorship rather than receivership. Thanks for calling out my mistake. I'll fix that in the text.

As for the comparison of the dot com industry vs. the housing industry, I worked in both, so I have some experience with the difference. In the dot com industry, we offered mainly ideas and services, not assets. Homes are assets and traditionally the best asset one can own.

Secondly, while there was a level of tension between lenders and the GSEs, it was still a relationship that served lenders well. You could argue that the industry would have done just as well, or better, without the GSEs, but you would need to show some evidence. If you have such evidence, I would love to see it.

Finally, the problem we're facing now came because lenders and GSEs left their long-standing practices of controlling risk. Moving so forcefully into the sub-prime market came because congress was pressuring the industry to better support "low-income households." The move to support those households without finding some way to control for all the increased risk was a huge mistake, and both the industry and congress share the blame for that.

My point all along has been that, in the face of a 9/11-like economic crisis, why was it necessary to go on a partisan attack right before a critical vote in the House? From Bizjournals.com, this quote I think is relevant:

Pelosi also gave a charged speech before the House vote, blaming President Bush’s and Republican economic policies for the credit and finance disorder, saying they followed a “right-wing ideology” while hailing the Clinton administration. Banking deregulation and home ownership pushes blamed in part for the mortgage problems curently saddling banks, enjoyed support from the Clinton and Bush administrations, including some former Clinton economic aides now advising Barack Obama.

Pelosi also called the original plan forwarded by U.S. Treasury Secretary Henry Paulson and Federal Reserve Bank chairman Ben Bernanke “arrogant” and hammered home criticism of Wall Street executives’ compensation.

Despite supporting the bill, Pelosi spent much of her speech criticizing Bush policies and Wall Street and echoing some of the liberal criticisms of the bill. She spent less time saying why she was supporting it.

Republicans said Pelosi’s speech and criticisms turned off some fence-sitting Republicans and emboldened more Democrats to vote “no” on the bill.

Ninety-five freshman, Hispanic and liberal Democratic lawmakers voted against the bill.

The article lists a host of factors contributing to the failure of the bill. If you would like to read it, you can view the article here:

http://www.bizjournals.com/atlanta/stories/2008...

Regards,

PatOH

Eric,

I agree that Pelosi's speech likely did not sink the bill. I think, however, launching a partisan attack before what could be a nation-saving vote in the House was a serious mistake. What I'm saying is that there are some in congress who are so reflexively partisan that they'll take any opportunity to attack the opposition.

And Pelosi's arguments regarding how we got into this mess were not even accurate. It was congress that created this mess when they pressured they pressured Fannie and Freddie to begin supporting sub-prime loans. It was a market they never should have supported and it virtually guaranteed a meltdown.

Penrenter,

I think that Pelosi's speech may just end her term as Speaker of The House, if not her career. It's getting a LOT of play, even from the mainstream press, and I'm not sure voters are going to appreciate such partisanship in the face of a national crisis.

Tom Delay was known to be equally tough in his demands on House members, but at least he had a bit of charm.

Here is a post from David Berstein over at Volakh.com which echoes my own sentiments:

Speaker Pelosi's speech before the House today was remarkable, but not in a good way. She was trying to round up votes for a bailout package that shes claims to believe is essential for the stability of the American economy. She can't, and doesn't want to, pass the bill without a substantial number of Republican votes. So what does she do? You would think she would say, "let's pass this emergency measure now, in the best interests of the country, and talk about who is to blame later." Instead, Pelosi began her speech with a highly partisan tirade against "Bush" and "Republican" economic policies, which were allegedly to blame for this situation. She focused on an attack on the growth of federal deficits, which clearly are at best tangential to the current crisis. That, to me, is the sort of irresponsible thing you do when (a) you're not claiming there is a vast emergency; and (b) you are in the minority, and not claiming to exercise leadership. [Commenters point out that Republican Housemember were acting equally irresponsibly to the extent they rose to Pelosi's bait and voted against the bailout out of pique at Pelosi. True. But the Speaker of the House is a leader, not just a random member of the House, and her actions inevitably and justifiably get more scrutiny than those of her colleagues.

Well, as you know, minority parties can wield influence if they act in a untied manner. And the 2005 legislation was killed in committee, not on the floor.

That is not saying this is strictly a Democratic or Republican party problem. I think people are too quick to want to blame one group or another, and that's not going to resolve the crisis we're in now.

The problem at that time wasn't merely that oversight was lacking, the problem was also, in the main, congressional encouragement to Freddie and Fannie to better support low income families. And the definition of low-income families is high-risk sub prime mortgages.

If you want to look at a lobbying agency that was one of the biggest players in pushing congress to get Freddie and Fannie into the sub-prime market, then learn what you can about "FM Watch" or "FM Policy Focus." This lobbying agency officially disbanded this year saying "our job is done," basically. When do lobbying agencies willingly disband?

Regards,

POHearn