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Paul Kiesel
Paul Kiesel
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Obama, Biden, McCain and Palin on the Federal Government's Takeover of Fannie & Freddie

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Both presidential candidates Barack Obama and John McCain said on Sunday that they see the federal takeover of mortgage finance companies Fannie Mae and Freddie Mac as necessary.

The vice presidential nominees, Joe Biden and Sarah Palin, had different views on the situation, with Palin leaving many scratching their heads after a few misstatements on the issue.

Barack Obama

“Given the substantial role that Fannie Mae and Freddie Mac play in our housing system, I believe that some form of intervention is necessary to prevent a larger and deeper crisis throughout our entire economy”

Obama also said that the plan for Fannie Mae and Freddie Mac needed to focus on strengthening the economy and helping struggling homeowners rather than focusing on “the whims of lobbyists and special interests.”

John McCain

The long-term reforms are to scale down Fannie and Freddie so their size is no longer a threat. And then to privatize them. Get them off the taxpayer’s books entirely,” said McCain’s chief economic adviser, Douglas Holtz-Eakin, who replaced Phil Gramm after he stepped down as McCain’s co-chair over the summer.

Holtz-Eakin went on to say, in a telephone interview with Reuters, “The next steps would be to have credit market conditions stabilize and have the ability, as a result, for firms to access capital again so that they can scale down their portfolio holdings.”

*It’s important to note that McCain’s former economic adviser, Phil Gramm, whom he recognizes as the savior of his campaign’s financial struggles from a summer ago, was the author of the Commodity Futures Modernization Act of 2000, which, incidentally, allowed for the mortgage crisis to precipitate in the manner it did. The bill helped deregulate many sectors, including lending and energy (Enron), and provided private companies the luxury of not having to be completely, if at all, transparent in their accounting (nor accountable), as governmental oversight waned.

Joe Biden

Joe Biden says the government’s rescue of the big mortgage companies Freddie Mac and Fannie Mae should not mean bailing out shareholders at the expense of taxpayers.

Biden feels it’s important to help homeowners and make sure the two companies still are in a position to keep making loans.

On Sunday, Biden told NBC’s “Meet the Press” that he had spoken to Treasury Secretary Henry Paulson on Saturday night, and that he thought the plan had a good chance of succeeding. “It’s not an official reorganization. It will be left to the next administration and the Congress to make those judgments,” Mr. Biden said.

Sarah Palin

Speaking before voters in Colorado Springs over the weekend, the Republican vice presidential nominee claimed, after omitting economic policy from her acceptance speech at the RNC last Wednesday, that lending giants Fannie Mae and Freddie Mac had “gotten too big and too expensive to the taxpayers.” However, the companies aren’t taxpayer funded. They operate as private companies. The takeover may result in a taxpayer bailout during reorganization.

The Huffington Post jumped on this gaffe earlier today and so did several economists, conservative and liberal, who were concerned with the misstatement.

“You would like to think that someone who is going to be vice president and conceivable president would know what Fannie and Freddie do,” said Dean Baker, co-director of the Center for Economic and Policy Research. “These are huge institutions and they are absolutely central to our country’s mortgage debt. To not have a clue what they do doesn’t speak well for her, I’d say.”

“Heretofore, if the treasury had a balance sheet there would have been a liability but there was never a taxpayer payment before [the bailout],” said Gerald P. O’Driscoll, an economist with the Cato Institute. “[Fannie and Freddie] were not taxpayer funded. They had taxpayer guarantee, which is worth something, especially in the stock market…”

Maybe Palin assumed that the two former private entities were taxpayer funded because in July they were being offered low market interest rates by the Fed, at the taxpayers expense. Or the fact that there was always an implicit guarantee that Fannie and Freddie would be backed by the government if they failed, again, at taxpayers expense. However, before today, Fannie and Freddie had not drawn down any of the credit line given to them by the Treasury, so her assessment still wouldn’t make sense.