I’m in broad agreement with the NYT editorial this morning on the bailout of government-supported enterprises Fannie Mae and Freddie Mac but I’ve got to say that this nettles me:
The United States must acknowledge that its deep indebtedness is especially dangerous in times of economic crisis. The level and stability of American interest rates and of the dollar are now dependent on the willingness of foreign central banks and other overseas investors to continue lending to the United States. The bailout became inevitable when central banks in Asia and Russia began to curtail their purchases of the companies’ debt, pushing up mortgage rates and deepening the economic downturn.
Are they talking about private indebtedness? Public indebtedness? The sum of the two?
If it’s private indebtedness that they’re concerned about, shouldn’t the Times favor policies that would foster more private saving? That would include a reduction of the tax on capital gains and a deemphasis of the income tax in favor of a national sales tax of some sort. I don’t recall the NYT taking either of those positions. Perhaps someone can help me out.
If it’s public indebtedness that they’re concerned about, is there something special about U. S. indebtedness? Our national debt as a proportion of GDP is small relative to that in the UK, France, and Germany. Are we the indispensable nation? If so, should we be treated as though we were?
There have been complaints about the national debt both here and in the UK, well, ever since there’s been a national debt and somehow both countries have managed to muddle through and prosper even while the national debt continues to grow. There’s lesson in there somewhere but I have no idea what it is.
Wow. In its editorial on the bailout the Washington Post not only advocates serious regulatory reform in the wake of the takeovers but questions the prevailing orthodoxy that the government should be subsidizing home ownership at all:
the restructuring of Fannie and Freddie should take the wider needs of the economy and the environment into account. The firms were launched in an era when homeownership rates were far lower than they are today. Now two-thirds of all households own their dwellings, and sprawl, traffic and global warming are major concerns. In addition to whatever lift they get from Fannie and Freddie, homeowners benefit from a mortgage interest tax deduction, which is not capped to exclude wealthy buyers of expensive homes. Meanwhile, poor families looking for help with their rent often have to wait for years. The Fannie-Freddie collapse is a reminder that housing subsidies, if any, should be as transparent — and as carefully targeted to those in need — as possible. This bailout is a sad and expensive necessity for the U.S. economy. It must become an opportunity to rethink not only the future form and function of two failed companies but also U.S. housing policy as a whole.
Now that would be revolutionary. Not that we will of course.