The Preliminary Version of Wisdom from The Financial Crisis Inquiry Commission

April showers bring May flowers, and maybe April preliminary reports will finally bring some developments on the financial reforms.  The first look at the thinking of the Financial Crisis Inquiry Commission is now available on the FCIC website. The five reports (available here) cover the roles of securitization, the Fed, the Community Reinvestment Act, the mortgage crisis, and the GSE’s in the financial crisis. Your chance to weigh in on these reports is now – the Commission is inviting comment until May 15.

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Addressing the GSEs

While we the people — through we the government – own the majority of GM and AIG, and a small share of most US banks, we completely own the GSE’s, that is the Government Sponsored Enterprises Fannie May and Freddie Mac. These institutions need a new charter, one that does not give executives and stockholders high pay and dividends when things go well and leave taxpayers footing the bill when they do not.

On Friday, the Republicans on the Committee on Financial Services have released a set of bullet points called “Goals and Principles for GSE Reform.” While the devil in legislation is in the details (not to say it isn’t also sometimes in the title too), the main points are right on track. The critical weak link in the release is: what is the mechanism that insures that we the taxpayers will not be bailing out these institutions again? Still, I am used to Barney Frank saying mostly the right things (post-crisis), and this document is on target and good to see. It makes one wonder what is taking the House so long to get a program in place?  Oh, that’s right, I forgot, the parties can’t even agree on what to order for lunch.

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Where do we go from here?

Last week I had the opportunity to opine on this question at a lively conference on the financial crisis sponsored by the Federal Reserve Bank of Chicago and the World Bank.  Since I spoke about things I’ve been meaning to blog about for some time, I decided to post the transcript here.  Apologies that the tone is more Fed-esque than the usual posting, but here goes…

Where do we go from here?

“You never want a serious crisis to go to waste.  And what I mean by that is an opportunity to do things you think you could not do before.”  Rahm Emanuel, Feb. 2009

I would like to touch briefly on two issues in answer to the question posed for this session:  first, the integration of housing finance into the financial and regulatory mainstream; and second, the need to modernize budgetary and regulatory accounting.   I chose these topics for several reasons: they are important; they get less attention than is deserved; and I have thought quite a bit about them from both an academic and policy perspective.

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Putting a Price Tag on Bailouts: It’s Time to Make the Fed Accountable Too

As the debate continues over the wisdom or lack thereof of Congress having given Treasury Secretary Paulson a blank check to keep Fannie and Freddie afloat over the next 18 months, a point that seems largely overlooked is that there was only one realistic alternative. Either Congress could explicitly provide a financial backstop such as the one just enacted, or the Federal Reserve could later ride to the rescue a la Bear Stearns should the need arise. After all, there is widespread agreement that Fannie and Freddie are too big, and at the moment too important, to fail, and that taxpayers are ultimately on the hook.

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How Much Will the Fannie and Freddie Bailout Cost Taxpayers?

It’s official.  After the administration’s protestations to the contrary last week – read my lips, no new bailouts – this morning Treasury announced a plan to inject “billions of dollars in loans and investments” to shore up Fannie and Freddie.

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