New York Times Death Spiral Watch (Michael Falcone Edition)
Joe Biden on the Total Uselessness of Republicans

Bush Administration Social Democracy: Smart or Dumb?

There are stupid ways to run a modern economy. And there are smart ways. Nearly everyone with a clue has long agreed that the short-term money market--the supply and demand of liquid assets--has to be a government-controlled market rather than a free market. Now the debate is over what to do with the long-term finance market for housing. It appears that Treasury Secretary Henry Paulson is weighing in on the side of nationalization:

Chris Bowers: Mortgage Industry Nationalized: I'm not versed enough in economics to know if this technically qualifies as the nationalization of a major financial sector, but it sure sounds like it.... The problem I have with this is not the move to nationalize the mortgage industry. That actually seems like a good idea to me. The problem I have is with the incredible cognitive dissonance surrounding "big government" in our national political discourse. Even as we have reached national consensus on nationalizing industries, which is the literal definition of socialism and big government, politicians of every party keep talking about "small government" as though it were a virtue. I mean, the day after the Republican convention, which included countless attacks on big government, the Republican administration goes out an nationalizes a major industry. It will probably be done in the typical corporate welfare style typical of American government--privatize the profits, socialize the risk--but it is still nationalization.

Voters, Democrats, Republicans, Independents, Conservatives, Moderates, Progressives, Greens--everyone is in favor of "big government" moves like nationalizing the mortgage industry now. And yet, all of those same people keep talking about how terrible big government is, and how we need to stop it. It is massive national lie. It is as though the entire country is a homophobe who is actually a closeted homosexual. It is as though the Emperor has no clothes, but now the entire nation has decided to dress to match.

Can we all stop lying to ourselves on this one? Please? Pretty please? This national self-delusion is a major obstacle to having an honest ideological debate in this country.

I don't see the necessity for nationalizing Fannie and Freddie right now. They both are still cash-flow positive, right? If they fail to rollover their bonds and become cash-flow negative, the Treasury can finance them with preferred plus warrants, right? There is an argument to be made on the side of equity for expropriating the common shareholders--they and their predecessors have made fortunes in the past by playing off of their quasi-public status, and that wealth properly belongs to the taxpayers.

I clearly need to think a lot more about this. My prior is the Laura Tyson position that the business of guaranteeing and packaging conforming mortgages is properly a public function, and that Fannie Mae as Charlie Schultze and company created it in the late 1960s is an unfortunate human-animal hybrid, as George W. Bush would say. But my opinion isn't a particularly informed one.