Some call the housing bailout bill the biggest intervention in the U.S. economy since the New Deal, but “CBS Evening News” doesn’t seem to mind.
The July 23 “Evening News” gave a glowing account of a “lifeline” bill working its way through Congress. The bill, which passed the House July 23, is meant to prop up beleaguered government-sponsored enterprises Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) and help homeowners refinance adjustable rate mortgages.
“This afternoon, the House passed a bill that throws an estimated $25-billion lifeline to Freddie Mac and Fannie Mae – the backbone of the home mortgage industry,” CBS chief White House correspondent Jim Axelrod said. “The bill makes it easier for both to raise unlimited capital from the government if needed and would allow hundreds of thousands of homeowners to refinance rather than face foreclosure.”
But Axelrod’s reporting didn’t explain that the “unlimited capital from the government” comes from taxpayers’ money, nor did he explain the bill eliminated the risks associated with lending.
Even liberal Economic Policy Institute senior economist Jared Bernstein, who said the bill is good for the economy in the short term, noted this substantial commitment from the federal government was bad in the long term.
“[T]hat’s why I said in the long-run, I think this doesn’t solve the problem, it kicks it down the road,” Bernstein said on CNBC’s “Kudlow & Company” July 23. “As I said on this show the other night, as long as Fannie and Freddie have now an explicit government guarantee, you’ve got moral hazard deeply embedded in there and that’s a problem.”
Jerry Bowyer, the chief economist for the Benchmark Financial Network, told Larry Kudlow’s “Kudlow Caucus” on CNBC.com there was no upside at all.
“It’s bad in the short run, unless you are either a highly paid Fannie executive or currently a staffer for any Democratic member of a Congressional Banking Oversight Committee, in other words, a future highly paid Fannie execute [sic],” Bowyer wrote. “In the long run, this will be a huge transfer of wealth to a corrupt bureaucratic and inefficient bureaucracy from the rest of us tax payers.”
But Axelrod saw the increase in the value of Fannie’s and Freddie’s stock as an approval from the financial community.
“Wall Street seemed to agree today,” Axelrod said. “After the president said he wouldn’t veto [the bill he had previously opposed], shares of Fannie Mae shot up by close to 12 percent. Shares of Freddie Mac rose by 11 [percent].”
However, Axelrod’s analysis that Wall Street approved of the legislation is misleading. The stock prices reacted because a federal guarantee makes investment in Freddie and Fannie less risky. The stock prices didn’t increase because the entire financial community approved of the massive government commitment.
Politicians and experts have compared the bailout bill to the creation of the Home Owners’ Loan Corporation in the New Deal.
President Bush announced July 23 that he would drop his opposition to a housing bill. The bill is expected to pass the Senate, according to “Evening News.”
