(I think that word “seizure” is so much more arresting than “bailout” or even “takeover.”)
In last Sunday’s Philadelphia Inquirer, they ran my op ed “Let the markets find their own recovery.” The people at PRI tell me that on Sundays this newspaper has the 7th highest circulation in the nation, so I’ve got that going for me, which is nice.
Here’s an excerpt:
If Congress defangs the alternative minimum tax, as it did last year to prevent a large increase on the middle class, the latest Congressional Budget Office forecast projects a record deficit of more than $500 billion for the fiscal year starting Oct. 1. Making the federal government ultimately responsible for roughly half of the nation’s mortgages will make it impossible for the next president to take other measures to help a sputtering economy, such as tax relief.
In exchange for these potentially huge costs, the takeover of Fannie and Freddie offers few benefits. On Monday, the stock market rallied, indicating that investors were reassured by the move. Yet these gains were more than erased the next day. Not only has the mortgage move failed to fix the financial markets, but it will arguably make things worse.
In a vicious cycle during the last year, investor behavior has been based less and less on fundamentals and more on government announcements. If Paulson’s secret strategy has been to show that throwing around billions of dollars won’t fix a broken economy, taxpayers can only hope this was the final demonstration of the rule. This is hardly the path to economic recovery.