Krugman; Atrios; and a comment on both by Calculated Risk:
The irony of the "subprime" situation, it seems to me, is that we probably all would have been better off if the GSEs [Fannie Mae and Freddie Mac] had gotten into it in a big way. If the GSEs had been able to create a market in "vanilla" subprime--fixed rates, no prepayment penalties, careful documentation requirements, competitive pricing--and forced their seller/servicers into a "subprime box," the subprime loan market would have been a lot better off. The "pseudo-Maes and Macs" have never really been very good at providing the kind of market discipline within their purview that the real Mae and Mac have. But we wanted "innovation" and "choice" and "flexibility," not domesticated subprime and "alt" financing with low margins, uniform loan terms, and front and side airbags.
Whaddaya mean, "we"? And what's wrong with vanilla?
Plenty of people like vanilla.
NOTE As Krugman pointed out, when you hear words like "complex" and "innovative" used for the products of financial engineering, keep your hand on your wallet.
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Another Analysis Worthy of Linky Goodness
Dean Baker writing at TPM Cafe had two good articles over the weekend.
The first was proscriptive; what we ought to do to bail out the two Maes, Fannie and Freddie:
Okay, we all should know that economists generally don't have a clue, but what should we do about the impending collapse of Freddie Mac and Fannie Mae? Well, it would be a devastating blow to the housing market to lose Fannie and Freddie even in the best of times, but it would really be a disaster to let them collapse in the middle of the housing meltdown, at a point where they directly or indirectly finance 70 percent of new mortgages.
So, we have to keep them going, but we also have to make sure the clowns that wrecked these huge companies feel the pain.
The recipe is simple. We impose some serious compensation limits as a condition of getting taxpayer dollars. How about $2 million a year? Yes, that is $2 million a year counting everything, salary, stock options, bonuses, use of corporate jets etc. (And if they lie, they go to jail for the rest of their lives - no more jokes from incompetent rich people.)
Is $2 million too low, will we lose top executives? First, who cares? These are people who were too dumb to see the largest housing bubble in the history of the world. If we lose them is that going to be bad news for Fannie and Freddie's future?
The second one is a eulogy of sorts for the first one:
Apparently the government is going to hand Fannie and Freddie bucket loads of taxpayer dollars, no questions asked. The NYT reports that they will be given access to $300 billion of government loans at below market interest.
That's nice. Shareholders who would have lost all their money if matters were left to the market, may instead walk away with billions of dollars. Similarly, the top executives of these companies, who earn salaries in the millions and tens of millions of dollars, will keep collecting their paychecks.
We should all be thankful that the government intervened. After all really rich people and investment fund managers can't be expected to be able to handle their investments on their own. They need the helping hand of the government when they really screw up.
Similarly, we don't want the fate of highly paid executives to be left to market. If this happened, some might lose their vacation homes and private jets.
Some people say that we had to hand tens of billions of dollars to the country's richest people to prevent a financial collapse. This is simply not true.
There's more to both pieces, plus comments.
Feel free to integrate this into your post, Lambert.
Baker's a good guy, and you'll appreciate his snark.
hedge funds are "complex"/"innovative" too, no?
Hedge Funds Show Obama the Money -- http://dealbook.blogs.nytimes.com/2008/0...
what are they getting in return for their support?
Well, only "creative" people...
can "innovate," right?
[ ] Very tepidly voting for Obama [ ] ?????. [ ] Any mullah-sucking billionaire-teabagging torture-loving pus-encrusted spawn of Cthulhu, bless his (R) heart.
First they ignore you, then they ridicule you, then they fight you, then you win. -- Mahatma Gandhi