BernieHund: The Political Watchdog

The government is racing to prop up our financial system, unveiling a new plan to keep Freddie Mac and Fannie Mae afloat… at taxpayer’s expense.

The plan, unveiled Sunday, is intended to signal the government is prepared to take all necessary steps to prevent the credit market troubles that erupted last year with losses from subprime mortgages from engulfing financial markets.

The Fed said it granted the Federal Reserve Bank of New York authority to lend to the two companies “should such lending prove necessary.” They would pay 2.25 percent for any borrowed funds — the same rate given to commercial banks and big Wall Street firms.

So far we have heard about commercial banks, Wall Street, now included among those institutions will be Freddie and Fannie.  Supposedly, the intervention will help those of us on Main Street.

That package includes a foreclosure rescue to help strapped homeowners get new, more affordable government-backed mortgages through the Federal Housing Administration, and creates a new regulator and tighter controls for Fannie Mae and Freddie Mac.

Senator Chris Dodd appeared on television this morning to “calm the waters.”  After the run last week on IndyMac, the 3rd largest bank failure in our national history, people are getting skittish. 

“There’s a big difference between IndyMac and Fannie and Freddie,” Dodd said. “IndyMac engaged in very bad mortgages, luring people into deals they could never afford. That’s not the case with Fannie and Freddie.” Dodd said that while there may be more bank failures, “I’m more optimistic about Fannie and Freddie than I am about these banks.”

As much as I am a Chris Dodd fan, I must say that I am not optimistic about much these days.  Not that I want to preach gloom and doom, but in today’s world the $100,000 of FDIC guaranteed coverage for Main Street depositors in case of a bank failure doesn’t seem like much.  I do realize that to many of us $100,000 seems like a fortune.  But, for those people who have worked and saved, and paid taxes on the interest they have earned over the years, $100,000 isn’t that much.  In fact, if you listen to anyone who talks retirement plans, $100,000 would barely leave you above poverty during your retirement years.

From the two presidential candidates we have heard…

Democratic presidential contender Barack Obama said the government’s main concern should be “to make sure that home ownership remains attainable and affordable for American families. Second, any measures should protect taxpayers and not bailout the shareholders and management of Fannie Mae and Freddie Mac.”

And from McCain…

Republican rival John McCain believes the measures announced Sunday “are consistent with the goal of providing support for a path through the current duress toward steps that include regulatory reform, market discipline and mission focus,” said Douglas Holtz-Eakin, senior policy adviser.

Of note, McCain’s comments came via a “senior policy adviser” and so we really don’t know what McCain thinks.  As he said last week of Phil Gramm’s comments as he tried to distance himself, McCain speaks for himself.  So, speak up!