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Fiscal Update

The debate over fiscal reform is heating up.  We’re almost to the 0.2 Obamacares in intensity.  The GOP finally unveiled their version of the Dodd bill and it is ... better.  There are a lot of similarities (the $50 billion liquidation fund; regulation of hedge funds and derivatives.  But there are key differences.

The Republican proposal deals with two things that the Democratic proposal does not touch. First, the Republicans take on the government-sponsored entities Fannie Mae and Freddie Mac — bailed out during the collapse of the housing bubble. Democratic staffers say that figuring out how to handle the GSEs and re-regulating the trillion-dollar market in government-backed mortgage finance requires its own bill. They have just started researching what they want to accomplish and how best to achieve it. Republicans, in fewer than 400 words, take the massive market on. They create a special regulator and indicate that no further taxpayer money should be at risk.

Personally, I would prefer to see the GSEs sliced up and sold off.  The government has no business running a mortgage industry.  But at least this does what the Republicans tried to do (and fiscal “hero” Barney Frank blocked) several years ago—get some outside supervision of the place where politicos go to get rich.

Read the whole thing, which is very detailed.  There’s a lot I don’t like, but this is a big improvement over the Dodd bill and maybe a sign that the GOP is slowly coming to their senses about governing the country.  I’m sure the Limbaughs of the world will explode if the GOP does anything other than filibuster.  But that way lies political suicide.

The other news is the continuing Goldman Sachs show.  The current cris de coeur is that Goldman continued to sell mortgage-backed securities while they bet against them.  But as Bainbridge points out, this is not illegal:

Maybe Goldman sold investors some rotten eggs. Maybe not. So what? Goldman argues that it is being “railroaded by Congress for performing a normal market function—pricing risk and providing investment opportunities for grown-up investors,” which strikes me as precisely right. It is a central tenet of the federal securities laws that you’re allowed to sell rotten eggs, so long as you disclose that they’re rotten. So long as Goldman fully disclosed all material facts, the fact that Goldman thought the securities being sold were “shitty,” as one scatological email reference by an unwise trader put it, is not a breach of the securities laws.

Again, read the whole thing.  Of course, we all know Bainbridge is a shill for big business, right?  Well, his opinion is shared by The Economist, Surowiecki, and even fricking Matt Yglesias.

In fact, at least one prominent person —holy shit, it’s Bill Clinton!—is not sure Goldman Sachs broke any laws.

That’s our former President, sounding more sensible than all the grandstanding morons on Capital Hill combined.

Congress has been looking to beat up some Wall Street execs too long to let little matters of law and business sense stand in the way.  But fortunately, it’s looking cooler heads may prevail when it comes to actually doing something about the fiscal crisis.  I’m not holding my breath—Sarbanes-Oxley had heavy bipartisan support.  But I’m slightly less gloomy than I was yesterday.

Posted by Hal_10000 on 04/28/10 at 07:22 PM in Politics Law, & Economics • Permalink


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