Tuesday, December 20, 2011

Freddie and Fannie discussed

Of course according to any right thinking person, the New York Times not only has a liberal slant, but lies to make that slant seem reasonable. So we can't believe any of Joe Nocera's column he titled "An Inconvenient Truth" (the title itself a slap in the face of right thinking people). Sure Nocera acknowledges how Freddie and Fannie not only wrote their own legislation and ignored attempts to regulate them, but had the well known accounting scandals in middle of the last decade. He even admits they made a "belated, disastrous foray into subprime mortgages" which ended up costing us all about $150 billion. But Nocera claims that Fannie and Freddie were not at the center of the financial meltdown. How can he make such a preposterous claim?

All parody aside, I found Nocera's column to not only a clear (and very fair) examination of both the virtues and recent faults of Fannie and Freddie, but also a good explanation of their place in the alternative (fantasy) history that Republicans have constructed. One local conservative commenter recently claimed that the Community Reinvestment Act was at the heart of the 2008 financial meltdown, that making sure that poor people of color could get affordable mortgages had somehow turned into liberals forcing banks to sell McMansions to blacks who could make the mortgages and bankrupted the banks. When I copied and pasted a passage from the Wikipedia page on the CRA about how (according to Paul Krugman among others) the CRA had had little effect on the meltdown (compared to mortgages given to more affluent people and for commercial property), this local conservative commenter stated that Obama and Krugman (!) had "cooked" the books at the Fed, just like the Soviets used to do.

My point being, not just the Republican Presidential candidates or the Republicans in Congress with their identical Climate Change denying or new found adherence to the Austrian school of macroeconomics (with its simplistic monetary theories that they cling to even though the real world behaves just the opposite of what they say it is doing - have you noticed our current hyper-inflation?), but even local conservative columnists and commenters on blogs all say the same things in the same way. Some times it seems like Democrats almost admire the way the Republicans march in lockstep. I think they are no more than a third of the country (Democrats and independents are each also about a third), but their very unity gives them an inordinate amount of power. But I wouldn't want the Democrats to be that united, since it might mean all Democrats would have to believe something like creationism, or all have to be pro-choice, instead of thinking for themselves. I think Democrats should have principles, but should always be open to discussing ideas. At least that's the way I want to be.


Heir to the Throne said...

adherence to the Austrian school of macroeconomics (with its simplistic monetary theories that they cling to even though the real world behaves just the opposite of what they say it is doing - have you noticed our current hyper-inflation?)
As opposed to Keynesian which was disproven by stagflation occurring in the 1970s

EdHeath said...

I dunno, HTTT, the WIkipedia page on Stagflation leads me to believe that Keynesian economists were ultimately able to explain the stagflation of the 1970's. I don't know that the solution that ultimately solved the problem, raising the prime rate to the highest level it had ever been, would be particularly considered a Keynesian solution; I would be surprised if any school of economics would recommend using monetary policy to throttle the economy. I believe Krugman has said that Keynes incorporated monetary policy into his thought (as well as, obviously, fiscal policy). Currently because the Republicans have paralyzed Congress monetary tools are the only ones being used because they are the only tools available, and they are under the control of Ben Bernanke, not President Obama.

All of which is to say that that yes, the fiscal tools that are normally considered the first choice in Keynesian policy perscriptions did not solve the problem of stagflation. But I am going to say that stagflation was a pretty unique occurence, apparently caused by supply shortages and President Nixon's price controls, as well as the initial international and to a lesser extent domestic response to taking the dollar off the gold standard and letting it float. As I (dimly) understand it, this thing called a liquidity trap that affect Japan in the 1990's and is affecting us now is also a very unique event. Apparently a sufficiently large stimulus would fix this problem, but of course that is not going to happen, in large part because of the current irrational Republican view of economics.

EdHeath said...

BTW, when I say throttle the economy, I don't mean push down or let up on the gas, by throttle I mean grab the economy by the neck and squeeze. Paul Volker squeezed hard enough that the economy fell into a recession. Inflation fell, and when the economy recovered from the recession unemployment fell. Not a pretty solution, but actually that is the heart of the economic boom people often attribute to Reagan (that and the massive increases in government spending during the Reagan administration).