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"It counts in the bill today"
This reminds me so much of why Fannie Mae was "spun-off" in 1968 that I& #39;m going to thread it.
1/ https://twitter.com/zachdcarter/status/1261330218914111501">https://twitter.com/zachdcart...
This reminds me so much of why Fannie Mae was "spun-off" in 1968 that I& #39;m going to thread it.
1/ https://twitter.com/zachdcarter/status/1261330218914111501">https://twitter.com/zachdcart...
In the 1960s a credit crunch in housing threatened to tank the economy. Fannie Mae existed for this moment. It could put money into the hands of lenders by buying FHA/VA mortgages. But there was a hitch.
I tell the story in American Bonds. 2/ https://tinyurl.com/y8xdrnur ">https://tinyurl.com/y8xdrnur&...
I tell the story in American Bonds. 2/ https://tinyurl.com/y8xdrnur ">https://tinyurl.com/y8xdrnur&...
Under the accounting rules of the time, Fannie Mae purchases counted *in full* as government expenditures at time of purchase. 3/
Big layouts in Fannie would be a huge problem, tho. Vietnam & the Great Society programs were already extending the budget. Budget hawks refused to raise taxes, and the deficit was pressing against the debt ceiling.
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Republicans and conservative Dems were using the debt limit to try to force cuts in social spending. Sound familiar?
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Fannie Mae Prez Ray Lapin would later say that the agency in those years was like "a fire department that had plenty of water except when there was a real conflagration"
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The Johnson Admin even tried using an early form of securitization to get around the debt limit entirely, which is a whole saga about govt accounting unto itself.
Long story short, they didn& #39;t pull it off.
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Long story short, they didn& #39;t pull it off.
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So: the housing market is tanking and threatening to take the rest of the economy with it. Fannie EXISTS for precisely this problem but its accounting is causing big political problem.
What do they do?
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What do they do?
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Spin-off time! They reorganize Fannie Mae.
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The new Fannie is designed to justify its off budget status while providing as much support for it as possible. The gov& #39;t can& #39;t risk its failure--after all, the whole underlying problem is a dangerously unstable mortgage market--so the govt provides a TON of credit support. 10/
What was actually "private" about the new Fannie Mae? What justified taking it entirely off the books?
The PROFITS were privatized through the sale of gov& #39;t preferred stock. But guarantees and a special line of credit meant that the public retained much of the risks. 11/
The PROFITS were privatized through the sale of gov& #39;t preferred stock. But guarantees and a special line of credit meant that the public retained much of the risks. 11/
Bankers were happy to go along with this.
For the Johnson Admin, it was a way to support the housing market without having to deal with all the budget fights. All they had to do was let private firms keep the profits that used to go back to the gov. 12/
For the Johnson Admin, it was a way to support the housing market without having to deal with all the budget fights. All they had to do was let private firms keep the profits that used to go back to the gov. 12/
Lawmakers framed the spin-off as a way to unleash the genius of private enterprise! What& #39;s not to love about that?
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The real story was that conservatives used accounting rules & the debt limit to thwart direct government action. But made no equivalent outcry when it came to guaranteeing risks of wealthy investors.
So: you can help the middle class as long as the rich get a cut.
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So: you can help the middle class as long as the rich get a cut.
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If not for how conservatives leveraged obscure accounting rules, Fannie& #39;s profits through 2008 might have instead gone back into public funds instead of private pockets.
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The take home is that nitty gritty accounting rules are part of how debt politics play out. If we ignore the minutiae of gov budgets, we can miss a lot of the action.
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We need real political reforms. Abolish the debt limit. Nuke the filibuster. Institutionalize the government& #39;s use of metrics that better account for social and environmental costs.
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Stay vigilant when it comes to any promise to solve deep problems of social distribution by drawing on private enterprise.
We& #39;ll be seeing a lot of hand waiving around that as this economic catastrophe plays out.
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We& #39;ll be seeing a lot of hand waiving around that as this economic catastrophe plays out.
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No windfall privatized profits when risks are socialized! That includes anything "too big to fail". If we are collectively on the hook for the downside of market risks, we should collectively benefit from the upside.
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And finally, we need to fight market fundamentalist fear-mongering over the deficit.
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Lets get back to the start of this thread.
Pelosi says: we can& #39;t have automatic stabilizers because it shows up as huge immediate outlays on the budget.
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Pelosi says: we can& #39;t have automatic stabilizers because it shows up as huge immediate outlays on the budget.
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Let me translate what that means: we should risk mass starvation and homelessness in order to make rich lenders happy.
There is nothing natural or inevitable about that. It& #39;s straight up class warfare, with the budget wielded as the weapon of choice.
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There is nothing natural or inevitable about that. It& #39;s straight up class warfare, with the budget wielded as the weapon of choice.
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