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Robert Kuttner: Shorts and Fannies: A Brief History

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marmar Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jul-23-08 08:19 AM
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Robert Kuttner: Shorts and Fannies: A Brief History
from The American Prospect:



Shorts and Fannies: A Brief History

An explainer on Fannie Mae, short-selling and government economic regulation.

Robert Kuttner | July 22, 2008 | web only



Americans who are not financial experts have been scratching their heads lately, trying to understand just what short-selling is and why it threatens banks, and what exactly Fannie Mae is, and how it might be dragging down a housing sector that it is supposed to help.

A brief history lesson is in order. Fannie Mae, (nee the Federal National Mortgage Association or FNMA) was once an irreproachable government agency -- its troubles began only after it was privatized and wise-guy executives started paying themselves multi-million dollar bonuses for taking excessive risks. And reformers have been trying to get rid of short-selling since before Franklin Delano Roosevelt.

This is a little technical, but stay with me. It's a good story.

For a year now, the Bush administration has been pursuing emergency regulatory interventions in practice that it does not accept in theory. Since mid-2007, the ad-hoc rescue operations conducted by Treasury Secretary Hank Paulson with the help of Federal Reserve Chairman Ben Bernanke have included:

* An emergency takeover of Bear Stearns by JP Morgan Chase, at fire-sale prices, putting $30 billion of taxpayer money at risk.
* Offering a general line of credit to large investment banks that previously enjoyed no special government guarantee or supervision.
* Putting government capital at the disposal of Fannie Mae, leading to outcries from across the political spectrum.
* Invited banks to exchange dubious paper for government-guaranteed Treasury bills, in order to recapitalize banks and move markets in risky securities that nobody else wanted to buy. .....(more)

The complete piece is at: http://www.prospect.org/cs/articles?article=shorts_and_...




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zanne Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jul-23-08 08:34 AM
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1. HAH! You got me! nt
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