The United States Constitution Article 1, Section 8 puts Congress in charge of the national checkbook. Legislation enacted over the years however, has created loopholes big enough to drive a semi through. This may end up being one of the biggest ones:
The credit crunch has displayed yawning democratic deficits, like the inability of Congress to get a proper handle on the Federal Reserve’s emergency lending programs. But with Fannie and Freddie, it is the Treasury that gets to freely commit massive amounts of money. Both companies have bought most of the mortgages written in America this year and are modifying large amounts of loans to keep people in their homes.
This matters to investors. From a macroeconomic perspective, it is unhealthy when the government faces few checks when pouring billions of dollars into one sector of the economy, in this case, the housing market. The Treasury has committed up to $400 billion to keep Fannie and Freddie solvent. The two have already received or requested over $110 billion of that total.
Legislation passed last year puts no dollar limit on how much the Treasury can plow into Fannie and Freddie. Granted, Congress signed off on that bill, and the Treasury does have to explain its injections to Congress. But legislators may look back at one of the biggest blank checks they have signed.
What’s more, a possible accounting-rule change could force Fannie and Freddie to consolidate trillions of dollars of assets and liabilities early next year. Since Uncle Sam controls the companies, that would effectively balloon the government’s balance sheet.
Accounting rule changes only seem to serve as rose colored glasses anymore. It’s hard for me to believe that an accounting rule change that would make the government’s balance sheet look worse will ever happen.
What is far more likely than the accounting rule change is that the Treasury will continue to pour money down the dark hole of the GSEs in the name of stabilizing housing. Someone needs to point out to Congress that the Constitution is intended to promote the GENERAL welfare, not the CORPORATE.
twist -
That accounting rule change, which is so fraught that none dare even speak its name, is FASB’s no longer recent decision to derecognize QSPEs. At the risk of sounding a bit like jryskmpr, I’d like to point out that concern about accounting rule 140 has been my #1 macro concern from my first significant comment on this site in July ‘06 and in fact for years before that pre-retirement on ADM S&T’s web portal and jumping up and down like a demented gerbil in the coffee room at 9 Grove Street.
If anyone’s still bothering to review Safety Net IV, they’ll see that the Peter Eavis, who is the author of the WSJ piece featured above, had grave concerns about Fannie’s QSPE portfolio in April 2005. It was Bruce Harting’s 7/7 ‘08 research note that panicked the foreign cenbank horses and caused their rush out of agencies. The same red-line plunge that, mysteriously, stopped so dead in January of this year, when the Fed started its own historic buy of MBS.
Art. 8 Sec. 1 was invoked, by the way, by a “naive” anonymous questioner at AEI’s recent Subprime VI conference, with interesting results. (I put up a preview of that Q&A session just the other day.)
To reiterate what is the actual bottom line of this story, Agency Debt must be kept off the government’s own balance sheet at all costs, because giving it “explicit” support would double the size of the nominal value of US National Debt and turn everyone’s macro assumptions into custard. That’s why they’re turning themselves inside out on this issue.
But John, hasn’t that horse long since left the barn? Since everyone knows they are not allowing the agencies to default, they have effectively already pulled the trigger on doubling the size of the debt. Whether they put it on the books or not, foreign central banks know what is going on – this seems like merely a snow job for the American Sheeple.
So now you’re getting Constitutional?!? Ha ha ha! That’s a laugh. A little late in the day, isn’t it?
The only way to control how Congress spends with respect to a fact, is to take the fact OUT of the political system. Any halfwit with knowledge of the law could tell you that. But unfortunately, just because you LIVE in the U.S., that apparently doesn’t oblige you to actually find out how it is governed. Your discussion of the Constitution is utterly pathetic.
You only take facts out of the political system by increasing individually enforceable rights with respect to them.
Now, I know, with your petit bourgeois attitude, that you would LOVE to take property out of the political system and hand power over it, to individuals. You’re one of them there “property rights” folks. OK, dingbat, show me how to do it. Meet the legal test of West Virginia v. Barnette for taking a fact out of the political system.
Show me that property (or any other fact with respect to which you would like to control government spending) is:
1. a fact of human experience
2. which history demonstrates
3. is not affected by attempts to affect it.
YOU chose the ground, YOU chose the Constitution. Now you have to RESEARCH THE FACTS and THINK. Can you manage it?
I very much doubt it. The only response to what I am saying here will be fustion or evasion. You guys are CLOWNS.
Jryskmpr-
I’m letting the personal attacks go only because you are directing them at me. Otherwise your comment would be deleted.
You know, my mother taught me that name-calling was more likely to detract from my argument than add to it- that if I wanted to make a point, it’s more effective to try and sway someone with logic. If your argument is brilliant insults won’t help make the point. If it’s not brilliant, insults won’t help either. My mother is a very bright woman.
I’m not “late to the game” with my fondness for the Constitution. I read it through for the first time when I was twelve, and have been using it as a reference ever since. I do not however, share your unique interpretation of the Constitution. I know how the U.S. is governed and sadly, it doesn’t have much to do with the Constitution any more. I wasn’t surprised when Pelosi was asked if she thought that Obama’s healthcare plan was Constitutional and she responded, “You’re kidding, right?”
I’m far more interested in the original limited government envisioned by George, Sam, Thomas and the boys in 1776 than in the numerous court cases since then. Even if I weren’t however, I’ve seen a lot of section 8 housing, and none of it excites me. An entire nation of it sounds awful. The world you describe where everyone has a “right” to housing doesn’t do much for me either.
Your arguments kind of sound like this to me:
Amorality combined with mortality precludes regret. They’ll be long gone before we or our children have to pay for it.
Chuck