Tuesday, September 09, 2008
Mortgage Bailout
Regarding the Treasury's bailout of the home mortgage giants Fannie Mae and Freddie Mac, I have nothing new to offer in the way of factual details of the operation. I accept Treasury Secretary Henry Paulson's statement that failure of these two institutions would have had unacceptable consequences, not only to the US economy but to the world as a whole. Foreign national banks were starting to sell the mortgage securities, as it was getting too risky to keep them. The whole thing was about to escalate into a meltdown of the world-wide business of lending money, not only to persons buying homes but to businesses generally, eslpecially small businesses.
So, the US government acted in a way to prevent a collapse of lenders everywhere. This action undoubtedly will have a major effect on the world economy. To me, this is a time when I have to admit that I was wrong in some of my previous posts. I asserted that there was very little if anything that our government could do to control the economy and in particular to ward off a recession. In my defense, I was thinking specifically about tax policy. I still believe that the rate of taxation has very little to do with the health of the economy. Cutting taxes does not appreciably spur the economy. However, using tax money to prevent the collapse of the home mortgage industry certainly does ward off a big, big recession.
So, the US government acted in a way to prevent a collapse of lenders everywhere. This action undoubtedly will have a major effect on the world economy. To me, this is a time when I have to admit that I was wrong in some of my previous posts. I asserted that there was very little if anything that our government could do to control the economy and in particular to ward off a recession. In my defense, I was thinking specifically about tax policy. I still believe that the rate of taxation has very little to do with the health of the economy. Cutting taxes does not appreciably spur the economy. However, using tax money to prevent the collapse of the home mortgage industry certainly does ward off a big, big recession.
Labels: FannieMae, FreddieMac, Home mortgage crisis
Tuesday, July 15, 2008
Unwelcome Chickens
According to the news this morning on the radio, the efforts by the US Treasury and the Federal Reserve to shore up the troubled firms FreddieMac and FannieMae have not had the desired effect of restoring the confidence of investors, both here in the United States and abroad. One explanation offered was that the shoring up efforts involved the United States assuming an additional massive debt liability. Thanks to the structural deficit put in place by the Bush tax cuts, the United States is already the world's largest debtor nation. China, in particular, may be skeptical of the ability of our country to take on the additional debt involved in saving these troubled mortgage holding firms from bankruptcy.
Mr. Bush started this when he inherited an economy and a tax structure from his predecessor that provided government surpluses for years to come. He had Congress enact tax reductions that did away with the surplus and created a deficit. The theory was that by relieving wealthy taxpayers of some of their tax obligations they would have more money to invest in new businesses, create new jobs, and spur the economy to new activities so the treasury's tax revenue would increase. Etc., etc., etc. Trickle down economics. Supply side economics.
The chickens are coming home to roost.
Mr. Bush started this when he inherited an economy and a tax structure from his predecessor that provided government surpluses for years to come. He had Congress enact tax reductions that did away with the surplus and created a deficit. The theory was that by relieving wealthy taxpayers of some of their tax obligations they would have more money to invest in new businesses, create new jobs, and spur the economy to new activities so the treasury's tax revenue would increase. Etc., etc., etc. Trickle down economics. Supply side economics.
The chickens are coming home to roost.
Labels: Bush tax cuts, FannieMae, FreddieMac, Home mortgage crisis
