Ironically, the moral hazard created by the Geithner plan is similar to the incentivizing of risky mortgage investments by the government's backing of Fannie Mae and Freddie Mac, which played a major role in causing the financial crisis in the first place, as economists Peter Wallison and Charles Calomiris describe in this paper. Wallison deserves some credit for warning about this danger back in 2005.
Both parties deserve blame for the policy of federal backing for dubious mortgages and investments. Certainly, President Bush didn't help matters when he, in his own words, "use[d] the mighty muscle of the federal government" to promote the issuing of risky mortgages.
Barack Obama, however, promised to break with the failed policies of the past, and often criticizes those who he claims advocate "the same failed ideas that got us into this mess in the first place." Ironically, he has now embraced some of the worst of those ideas himself.
Read it all and follow the links as well.
Filed under: * Economics, Politics Economy Credit Markets The 2009 Obama Administration Bank Bailout Plan The Banking System/Sector The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- The U.S. Government Treasury Secretary Timothy Geithner
Posted April 1, 2009 at 7:37 am
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