While I agree with a lot of what the Representative said, his comments about European socialist economies having "flat growth rates and lower standards of living" is inaccurate. Last I checked, the U.S. has a lower standard of living than most west European countries and Canada.
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Saving Fannie & Freddie
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But it provides a certain amount of confidence to the market when the government serves as a guarantor.
Of course. The guy who owns a BBQ stand in Athens, Texas, could get credit at a lower rate if the government would guarantee it. GM would get a better rate on their borrowings if the federal government would guarantee it. I could get a better rate on my car if the government would take it. But I am against giving a blank check to Fannie and Freddie with no significant underlying reforms that ensure the taxpayers don't face a bigger problem five years from now.
Could you envision the Fannie and Freddie cases leading to regulation of investment banks as well?
I believe the purpose of the federal government ought to be to protect us from fraud. But I don't want to stifle innovation in our capital markets. If regulation is so good and regulators are so smart, why did IndyMac just go belly up. Most economic historians will tell you that the Great Depression probably would have been a garden-variety recession had not an incredible amount of regulatory and legislative blunders been made.
Could this be the beginning of a financial regulatory overhaul, like we saw in the New Deal after the depression?
Yes, if the federal government is about to be the guarantor of last resort. If we do it for [Bear Stearns], then Fannie, then Freddie, then who's next? GM? Most Americans might consider Anheuser-Busch more valuable to the country than Fannie and Freddie. So do we just jump in and prop them up? And at what point do we all of a sudden morph into some kind of European socialist economy with flat growth rates and lower standards of living? No thank you. That's not the American dream I want for my 6-year-old daughter and 4-year-old son. If this is the beginning of something, it's probably the beginning of something very bad.
© 2008
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