I suppose I do not see it as a grey area at all. Should I lose my job, I will probably qualify for unemployment insurance, and if I become impoverished, I will apply for medicaid. If I finally get beaten up at work, I will go on disability. And when I get rather older, hopefully I will get a social security check.
All of these things are implied taxpayer supports. But until I actually receive any benefit from them, I am simply not taxpayer supported. Perhaps I spend so much time on the SDMB at work because I know if I am laid off, I will be able to collect unemployment. This is a taxpayer guaranty.
But I am not on the dole until I go on the dole. Unemployment or disability may be on my mental balance sheet, but the expense to taxpayers is not realized until it is. Likewise with FNMA. The taxpayer-supported guaranty is implied, but until it is called in, it impacts no one. Palin’s implied causality is equally surprising. FNMA could have been a hundred times bigger than it is and not become insolvent. It is its inadequate capital requirements, worthless assets, and insolvency that creates the problem. Not its size or expense. Although I am not inclined to be charitable to Palin, I have to believe that she had some sense of the basics about this institution. I just cannot find that in her words. It doesn’t help that she has been sent back into her corner for some quiet time.
You said very clearly that the Federal Government could not do anything. That Palin’s statement about McCain calling for reform showed her ignorance since he had no power to reform. You said there was no wiggle room. If you now admit that they did have regulatory oversight, do you now agree that that part of Palin’s comments are correct?
You seem to be arguing that a contingent liability is not a real liability. I don’t agree with that viewpoint. It may or may not be on the balance sheet, but that is why footnotes are important.
I don’t want to try to read Palin’s mind here as I imagine she was just reading some prepared statements and really doesn’t know much. However, it could be argued that the companies were able to grow in size due to low capital requirements and loose lending standards. I haven’t looked to see how their balance sheet has grown over the past several years, but fast growth can sometimes be cause for alarm. In fact, I believe that Moody’s uses asset volatility as one of their key warning signs when assessing default risk.
Contingent liability is a real liability, which is why my company has hundreds of millions of dollars in reserves for it. To my knowledge, there is no such reserve on the federal government’s balance sheet. In the case of a reserve, expenses are taken to support this liability. If there were no reserve, then there was no impact until implosion. From this, I would conclude inadequate regulation, influence peddling, and stupidity.
Low capital requirements I can understand. But this is not difficult to articulate. I don’t know offhand the mix between FNMA originated loans and ABS instruments held, but I suspect lax lending was less of a problem than owning structured products from loans originated by others. These products were presumably mark-to-market, so as long as housing prices were sustainable, the value of the assets remained non-volatile. Understandably this would not trigger warnings in Moody’s risk models.
That is a stupid thing to pick on him for. He did not say he registered for selective service in 1979. He says he graduated in 1979, and registered when he graduated. He did not say he registered immediately after he graduated, and few people do.
I registered with selective service when I graduated, but I did not register in the year I graduated (I graduated when I was 17 and did not turn 18 until the next year).
It might be prudent to reserve for contingent liabilities, but I don’t think it is very common. In my line of work (commercial lender), I see guaranties fairly regularly (both personal and commercial). For example, most commercial real estate projects are set up with a single purpose entity as the borrower with recourse to the parent. It is therefore very common to underwrite the other projects that the parent guarantees. Many times, you know that they could never fully cover all of the projects that they guarantee. I have never see a reserve or escrow account associated with any guaranties of this nature either.
I understand that most of their loans were not originated by them. However, their power in the market place essentially dictated lending standards of others by stating what kinds of loans they would buy.
Regarding volatility, I was speaking more to the expansion in the balance sheet as a result of fast growth in purchasing loans.
I work for the acquirer/processor in a global credit card company, so I am more familiar with consumer lending. We have to reserve for contingent liabilities under FAS 5 & FIN 45. We provision on both the merchant acquirer side (for receivables owed to us when large merchants go bankrupt) and on the issuer side. Our credit card business is unusual, so we have a massive contingent reserve for our flagship loyalty program on the off chance that everyone with chips cashes them all in.
If every large merchant we did business with spontaneously went bankrupt, our reserve is obviously not big enough to cover those losses. But we have lost large partners, and the damage is partially mitigated by the existence of the reserve. So it is fair to say that our merchant reserves are supported by both the merchants and users of our plastic, because we take regular expenses to ensure adequate provisioning.
Actually, he was trying to say “47”, but said “57” instead. He said, “Over the last fifteen months, we’ve travelled to every corner of the United States. I’ve been in fifty…seven states? I think one left to go. One left to go. Alaska and Hawaii, I was not allowed to go even though I really wanted to visit, but my staff would not justify it.”
So 47 +one left to go +Alaska and Hawaii=50 states. But yeah, it was pretty clearly a slip of the tongue, and nobody really thinks he thinks there are 57 states.
Yeah. I’m afraid that another ignorant halfwit will become president and fuck this nation as bad or worse than dubyuh. Doesn’t everyone find that spooky?
Everyone is painting McCain as Bush3, but it’s seeming more like Palin is Bush4. And thanks to McMethusalah’s aging circulatory system, we might get to experience both in the space of four years.
Just for completeness here is a Wall Street Journal Op-Ed piece authored by McCain and Palin, although it is pretty clearly McCain with a cameo by Palin.
No, this just doesn’t make any sense. The Federal Government regulates every business to one extent or another. That doesn’t mean they have control over them, or the power to reform how those businesses were run in any meaningful sense of those words.
So are you suggesting that the blogger who posted that excerpt is the author now? You do realize that they aren’t, right?
Though what the author has to do with the factual quoting of a third party is unclear to me, except to say that they chose that particular party to quote. You still haven’t addressed the content of that quote, by the way.
I don’t go to that website, so I’m unfamiliar with its political bent. But that is beside the point. I grabbed the first link that contained the quote from the economist who was aghast at Palin’s lack of knowledge.
Had you perused that link as closely as you claim to, you would have discovered that they only selected a small portion of the original article that was published on the Huffington Post. No less left-leaning, of course, but the author is no hack.
But here, I’ll give you yet another quote, from the original source:
Now, do you care to discuss the CONTENT and not the blog it was posted on? Or are you willing to concede that you’re wrong on this point and we can move on?
These are very meaningful reforms. I have tried to spend a little time wading through the crap to find evidence that McCain at some point advocated for either of these or any other substantial FNMA reform. I am coming up short. Perhaps someone else knows something I don’t around here.
So he is essentially nitpicking that she says taxpayer expense and should have said taxpayer liability? I think most would concede that non finance/accounting types make that mistake from time to time.
I find that LonghornDave makes my point excellently. There was taxpayer liability already. She says “too expensive to the taxpayers.” Your gripe is that the taxpayers haven’t incurred any cost, and this proves she has no idea how Freddie Mae and Fannie Mac operate.
But her comment refers to the taxpayer liability. It’s true that, in technical accounting terms, it’s not (yet) a taxpayer expense. It DOESN’T show she’s ignorant of how Freddie and Fannie operate.
We are going around in circles again. If we assume that she meant liability instead of expense, then how can she justify her current support for the bailout? If you believe the liability is too large, then reform the organization to reduce the liability. If it’s “too big for the taxpayers”, then how can she justify passing the buck on to everyone else? If it is too big, then don’t guaranty the loans and either work to reform FNMA or just watch it die.
To both Bricker and LonghornDave; you guys seem to have lost track of the original quote by Sarah Palin.
She did not substitute the term “taxpayer expense” for “taxpayer liability”.
No, what she said, again, was, “Fannie Mae and Freddie Mac have gotten too big and too expensive to the taxpayers.” She then went on to say that under their administration, they would make them “smaller and smarter.”
HUH?
The only way to grok her meaning as anything other than what she plainly said, is to bend over sideways, squint one eye, hop up and down on one foot, and flap your arms like a bird while you’re listening to it. Otherwise, it doesn’t say what you interpret it to say.
There is a HUGE difference between an expense and a liability. And while I don’t expect every non-accountant type person to understand or use them correctly, I most certainly do expect the vice president of the United States to be able to do so – especially in a prepared stump speech that she had time to study for!
But at least I can say thank you to Bricker for finally addressing the actual point.