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Frank-Dodd Bailouts: Arithmetic, Not Ideology
It is remarkable how often reporters/columnists feel the need to assert that political disputes are about ideological issues. Why do they feel the need to make assertions for which there is generally no evidence?
Politicians get elected by getting the support of individuals and groups with power. They don't get elected by being political philosophers.
Contrary to what Gretchen Morgenson (ordinarily a very good reporter) tells NYT readers, the battle over the Frank-Dodd bailout plans is not about ideology. The bills are crafted in ways that make them very friendly to banks. The banks get to decide which loans get put into the program. Presumably they don't make this decision unless they think they will benefit from the bailout.
In addition, the appraisals on which the government's guarantee price is set are based on sale prices, which may still be seriously inflated in the bubble markets. It would have been easy to avoid the problem of inflated appraisals by setting the guarantee price based on a multiple of rents. However, the supporters of these bills chose not to go this route.
At least some of the opposition to these bills is based on the view that giving more taxpayer dollars to banks should not be a higher priority than paying for health care, child care and other important needs. It is not clear what ideological issue is at stake here, since the ideology that we all should pay higher taxes to keep the banks rich has never been well articulated.
--Dean Baker
COMMENTS (6)
Dean,
Do you think that Dems like Frank are simply in the pocket of the banks, or do you think they stupidly believe that they're actually trying to help homeowners and not banks?
I ask this as a liberal Democrat. I find myself in the extremely odd position of agreeing with the House Republicans and Bush about the bill.
Posted by: liberal | May 11, 2008 3:45 AM
Liberal,
i really don't know with Frank. I know that Frank is very smart and given that I have made these points in numerous public forums (including congressional testimony), as have others, it is difficult for me to believe that he does not know and understand these issues.
So, your guess is as good as mine.
Posted by: Dean Baker | May 11, 2008 8:11 AM
Is Morgenson really that great of a reporter? Tanta at Calculated Risk has documented her complete misunderstanding of the mortgage industry. She seems to be more interested in writing "gotcha" stories than really understanding the issues.
Posted by: AF | May 11, 2008 10:33 AM
AF wrote, Is Morgenson really that great of a reporter?
I've followed those Tanta posts, and while Tanta seems to be correct, Morgenson did some really good reportage in the wake of Enron, IIRC.
One article stands out for me---something about the quality of earnings being of poor quality (in domestic public companies).
Given the recent charges piled up by financial companies, all I can say is "boy, looks like she called that one right!"
Posted by: liberal | May 11, 2008 12:43 PM
Back in the 1980s, I was working on legal documentation for the sale by a non-bank mortgagee of its mortgage portfolio to a buyer planning to securitize such mortgages along with others it was acquiring. The values of the properties seemed to be fairly close to the mortgage balances. I inquired about the risks to the buyer (and its customers) and was told that when it comes to residential mortgages, mortgagors will do "whatever it takes" not to lose their homes. This was the thinking apparently of the underwriters. Since then property values increased with the housing bubble. I wonder if the underwriters think the same way today with the subprime mess.
Posted by: Shag from Brookline | May 12, 2008 8:10 AM
This is classis of the time. Lobbyists give to BOTH political parties & it's normal to expect them to ask a Democrat to propose a Bill a Republican couldn't get through. If a Republican proposed this Bill, it would have gone nowhere, it would have been quickly dismissed as a "lender bailout". But because a Democrat proposed the Bill, and described it as "good for homeowners", it got through both houses of Congress.
It's still the same lender bailout folks & the same lobbyists. My guess is they're very afraid of alt-a resets coming up.
SHAME ON BARNEY FRANKS AND ALL THE DEMOCRATS & REPUBLICANS WHO VOTED FOR THIS TRIPE!
Posted by: bailey | May 12, 2008 4:49 PM