From our point of view, the nationalization of Fannie Mae and Freddie Mac couldn't have come sooner. In fact, if there's one problem I have with this whole situation, it's that it didn't happen months ago.
All year investors have been panicked about whether or not the government still implicitly guaranteed GSE paper, and that panic was the source of a tremendous amount of havoc in the credit markets, havoc that could've been avoided if the Treasury Department had made its move earlier or had been more pro-active in other ways. For a long time all Treasury Secretary Hank Paulson would say was that the capital levels at Fannie Mae and Freddie Mac were fine. I bet that was real encouraging for all the institutions that owned agency paper. I'm sure Treasury officials were all shocked this weekend when they found out that Freddie Mac was overstating its capital cushion (although doing so in a perfectly legal manner). Haven't these guys been paying attention?
Fannie and Freddie together own the majority of crummy mortgages in this country, so you'd think with so many other banks saying their capital reserves were just fine and then abruptly announcing the need to raise capital – see Merrill Lynch among many, many others – the Treasury Department might have decided to take a closer look at Freddie and Fannie's books before last week, given what the rest of the financials were going through. But no, it was like they were looking at Fannie and Freddie in a vacuum, without using what they knew about other mortgage lenders to draw any kind of inference about these two.
The Treasury Department has something like 115,000 employees and a $12 billion budget. Why can't they hire some people to do the kind of homework that led most money managers to sell Fannie and Freddie down to the single-digits? Why couldn't the Federal Reserve have some staffers do the kind of bottom-up analysis, rather than their myopic focus on top-down macro analysis, that led Jim to call for lower interest rates while the Fed was still worried keeping rates high to fight inflation that was beyond its control?
It seems to like these guys get points for taking their time, letting the situation unfold, and only taking decisive action when they've run out of other choices. They should be castigated for that kind of behavior. They're always being reactive rather than pro-active, wanting to be able to say, "Look, we waited and waited and it didn't get better," or, "We had to be sure there were no other options." What kind of attitude is that when the option they're avoiding is a good one? It's the pure logic of laissez-faire taken to its dangerous conclusion – the Hippocratic Oath for doctors is "first, do no harm," for economic policy-makers the motto seems to be, "first, do nothing." Letting a bad situation fester and hoping it will get better instead of taking action that you know will cause immediate improvements is not responsible. It's lazy and it's reckless, and I wish someone would call them on it instead of treating the Fed and the Treasury, but the Fed especially, like the ancient Greeks treated augurs who would look at goat entrails to predict the future, with way too much faith and a horrifying lack of skepticism.
The lack of accountability for the wise men who direct our fiscal and monetary policy is outrageous. This stuff IS NOT rocket science. Greenspan just made it look that way because he was a terrible communicator. In France Louis XVI went through 15 finance ministers (if you count Necker multiple times) in 17 years, and many of them were fired due to popular pressure from the illiterate Parisian masses. In the last 29 years we've had three Fed chairmen and I'd be surprised if most Americans knew the current guy's name, let alone his job description. I'm not suggesting that America in 2008 has anything in common with pre-revolutionary France – their economic problems were far worse than ours--but we could do with a little more Ancien Régime style accountability.
Cliff Mason is the Senior Writer of CNBC's Mad Money w/Jim Cramer, and has been that program's primary writer, in cooperation with and under the supervision of Jim Cramer, since he began at CNBC as an intern during the summer of 2005. Mason was the author of a column at TheStreet.com during 2007, which he describes as "hilarious, if short-lived." He graduated from Harvard College in 2007. It was at Harvard that Mason learned to multi-task, mastering the art of seeming to pay attention to professors while writing scripts for Mad Money. Mason has co-written two books with Jim Cramer: Jim Cramer's Mad Money: Watch TV, Get Richand Stay Mad For Life: Get Rich, Stay Rich (Make Your Kids Even Richer). He is 100% responsible for any parts of either book that you did not like.
Mason has also had a fruitful relationship with Jim Cramer as his nephew for the last 23 years and will hopefully continue to hold that position for many more as long as he doesn't do anything to get himself kicked out of the family.
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