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Lawrence Lindsay's WSJ Op-Ed Blasts
Paulson
In his Friday, August 1, opinion
piece, Hank Paulson's Fannie
Gamble, former Fed official
and Bush economic advisor Lawrence
Lindsay offers a strong critique of
Treasury Sec. Henry Paulson's and the
administration's supported 'housing
bailout.' Recall that Mr. Lindsay was
effectively fired from the Bush
administration for publicly stating
that the Iraq War would cost a mere
$200B, thought politically
unacceptable at the time. Key
excerpts:
"Our housing finance system has been
broken for quite some time, creating
perverse incentives for borrowers and
lenders. We have now reaped the
consequences, and a major financial
bailout of the system is probably
inevitable...
"The 700 pages of legislation, which I
doubt many members of Congress have
even attempted to read, contains many
egregious provisions, some of which
are unrelated to the trouble at hand.
But the pork designed to buy votes for
the legislation pales before the
blunders directly related to the
problem at hand...
"The more plausible reason for the
bill's structure is that the decades
of coziness between politicians and
Fannie and Freddie is paying off. Not
only were there campaign
contributions, but their "foundations"
contributed huge sums to think tanks,
and many political figures made the
transition from government to the GSEs.
The list of their connections reads
like a combined Washington-New York
phone book, and undoubtedly gives the
appearance that both Wall Street and
politicians close to Fannie and
Freddie had key seats at the
bargaining table over this bill. The
taxpayer was not adequately
represented.
"Nor was the homeowner an obvious
beneficiary. Both conforming and jumbo
mortgage rates have risen about a
quarter point during July. The new law
actually reduces the amount of
competition in the mortgage
securitization business going forward
by solidifying the special position
for the two leading players, Fannie
and Freddie, while competitors
scramble to get capital...
"If any other country announced that
its finance minister could print
unlimited debt to do something
similar, financial markets around the
world would dump both the country's
debt and the country's currency. It
may well be different because this is
the United States of America. But
certainly, to take such a risky and
unprecedented step, a better crafted
and considered piece of legislation
should have been created."
Full article, subscription required:
http://online.wsj.com/article/SB121754567926302543.html?mod=todays_us_opinion
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