Hank Paulson's Sunday evening announcement on Fannie Mae and Freddie Mac (the two gigantic pseudo-private enterprises that own or guarantee about half of the country's mortgages, and whose shares investors have been dumping) was mostly a request to Congress for temporary permission to act "if needed". He wants the Treasury to be able to lend to them, and to provide them with new capital (by buying equity or some kind of preferred stock). Meanwhile, the Fed has announced that it will provide liquidity support if required.
Paulson hopes, of course, that he will not have to use the methods he is asking Congress to allow, and that merely requesting the option will be enough to calm the markets. We shall see. The problem with the Treasury's approach is that, even while asking for these powers, thus confirming that it cannot let the enterprises collapse, it insists that they must continue "in their current form". If the enterprises prove unable to finance themselves privately, then they cannot, by definition, continue in their current form. So on reflection I don't know whether the announcement is about the art of muddling through or the art of self-contradiction. Maybe both.
My Monday column for the FT discusses Fannie and Freddie at greater length.
Yes, one has to wonder how much Fannie and Freddie and other more explicit housing subsidies like the mortgage interest tax deduction artificially inflate house prices and even helped to inflate the housing and credit bubbles.
There are some reasons to encourage home ownership, but in strict economic terms perhaps not. For example, to the extent that homeowners are less likely to move to change jobs in response to changes in the economy, ownership may slow economic growth. And Robert Shiller's historic home price data show that homes aren't a particularly good investment, at least in the national averages, and yet Americans strongly believe otherwise.
50 USD you have a negative net worth.
Where does Robert Shiller's "historic home price data show that homes aren't a particularly good investment." According to the XL sheets and studies argue I downloaded, he argues the contrary. In fact he argues for more government intervention, Malthus.
Google is a poor substitute for education.
Wouldn't you feel more comfortable blogging at the Huffingtonpost?
Ignoring the non-sequiturs in your reply, Luis, the second edition of Shiller's book, "Irrational Exuberance," has an addendum on property and he finds that real returns on equivalent properties after adjusting for other costs are miniscule: 2% or less annually. He also debunks a lot of the mythology surrounding property as an investment.
But I haven't read what he has to say on government involvement in the housing and mortage markets.
Given that I stated that Google is a poor substitute for education, I find it interesting that the addendum to the book you cite, is also cited in Wikipedia.
Moreover, given that I wagered that you have a negative net worth, may I suggest that you contrast the net present value of an individual who buys a home that grows 2 percent annually, with another individual who simply rents. And when you find this NPV, could you ask yourself if it supports the fact that the wealthy own homes while the poor do not?
And since you are such a fan of logic, could you explain to me how do the studies of the much cited economist, support your thesis that, "in strict economic terms there is no reason to encourage homeownership, as homeownership "may slow economic growth." Because although I surmise that Karl Marx, and any Huffington Blogger may agree with you, I don't think Schiller, a Fellow at the Yale International Center for Finance of the Yale School of Management, would concur with your neo-marxist hypothesis.
Thus, as far as non sequiturs are concerned, you should worry less about ignoring those that are nonexistent in others and worry more about your own, of which you are oblivious.
But of course, why oh why would these particular CEO's expect to be held accountable let alone give up the bazillion dollar bonuses they issued to themselves while operating these companies and our nation into the economic sewers?
The new American dream choreographed these last 7+ years is based on "other people's money" and tax payers being "accountable" to the billions/trillions of losses to keep American "patriotic" CEO's out of jail.