Some Passing Thoughts on the GSE Bailout (Updated)

I’ve tried to hew as closely as possible to reporting the unadorned facts in my prior posts on the bailouts, announced today, of the two public/private hybrid “government-sponsored enterprises”, colloquially known as Fannie Mae and Freddie Mac but I do have a few passing thoughts on them which I’ll offer up here.

First, as hopeful as Democratic activists are to score political points over the bailout I don’t think it will be easily accomplished. Yes, it occurred on the Bush Administration’s watch and they certainly deserve whatever opprobrium they receive out of what may well be the greatest financial bailout in history. There’s plenty of blame to spread around, the lack of oversight goes back before the Bush Administration, and the Obama campaign has to some degree inoculated the Republicans against too much harm: the former head of the vice presidential search committee was once the CEO of Fannie Mae. This speaks more to the point that John McCain has been making about the pervasiveness of corruption in Washington than it does to the notion that it’s all the Republicans’ fault.

Second, what else would they have wanted to do? The bailout was inevitable. As I understand the terms it will suitably punish officers and private stockholders while taking care to preserve taxpayers and foreign investors, e.g. Chinese banks, to the greatest degree possible. To do otherwise would have shown a sort of “let them eat cake” disregard.

So, yes, I think there will be a certain amount of grousing but I doubt you’ll see it from the Obama campaign and the kvetching probably won’t have legs, at least not from the Democrats’ side of things. I suspect you’ll get the most complaining from the free market anarcho-capitalist sorts who are busily trying to make bricks without straw.

Update

Tyler Cowen fleshes out the last sentence of my post, explaining what could happen if we didn’t bail out the GSE’s:

The dollar would fall say 30-40 percent in a week, there would be payments system gridlock, margin calls at the clearinghouses would go unmet, and only a trading shutdown would stop the Dow from shedding half its value. Most of the U.S. banking system would be insolvent. Emergency Fed/Treasury action would recapitalize the FDIC but we would lose an independent central bank and setting the money supply would be a crapshoot. The rate of unemployment would climb into double digits and stay there. Many Americans would not have access to their savings.