What Goes Around . . .

“The user fee is a partial payment for the implicit guarantee it receives from Uncle Sam. The rationale behind such a fee is that since taxpayers are bearing an implicit risk on [the institution's] activities, it is reasonable that the federal government recoup fees to pay for that assumption of risk. The main advantage of such a fee is that it would help level the playing field between [the institution] and its fully private competitors.”

What is “[the institution]“? It’s Fannie Mae, and that’s Stephen Moore of the Cato Institute testifying before Congress in 2000 in support of “a ‘user fee’ of 10 to 20 basis points on [Fannie's and Freddie's] debt to level the playing field between Fannie and competitors.”

That’s from Representative Brad Miller’s op-ed pointing out that a small tax on debt issued by financial institutions that enjoy an implicit government guarantee is something that Republicans (and even the libertarians at Cato) used to be in favor of. The best reason for President Obama’s proposed bank tax is not to punish banks or to recover the money that the government is likely to lose via TARP; it’s to level the competitive playing field (although it doesn’t do enough).

As Miller points out, the battle over Fannie and Freddie was a battle for profits between them and their competitors, in which both sides mobilized whatever Congressional support they could. As it turns out, the competitors were right: Fannie and Freddie did enjoy a government guarantee. Now those competitors are the ones with the government guarantee.

But does reminding Republicans that they used to support something help when you try to get them to support it now? Apparently not, judging from the Medicare cost growth-reduction provisions in the health care reform bill.

By James Kwak

11 responses to “What Goes Around . . .

  1. So if Republicans are hypocrites for favoring the tax before and opposing it now? are Democrats also hypocrites for opposing it before and favoring it now?

    The answer, of course, is “yes”. And a pox on both their houses.

    (Although if you want to make the case that Republicans stand alone as “the bad guys”, bringing up Fannie and Freddie is probably not the best way to open your argument.)

  2. But Fannie and Freddie are exempted from this fee.
    So, what is the point of this post but to show that James Kwak is a Democratic party shill and a hypocrite to boot.

  3. I’m with Nemo. Framing the issue in terms of politics is a mistake and will trigger hostile reactions like cfpete’s.

    The only way to get past politics and emotions is to frame the issue in terms of economics. Anybody who was in favor of a GSE user fee in 2000 should still be in favor of a GSE user fee now. We already know that people who were against a GSE user fee in 2000 are for a user fee for TBTF banks now. The only way to reconcile the pro-GSE and pro-TBTF positions is to impose a user fee now for both the GSEs and the TBTF banks.

  4. It’s quite interesting to watch the party Republican party vote for national destruction as a function of what they think is party survival.

  5. Not 1 mortgage should be guaranteed by the Federal government. Not 1. Not any.

    Mortgages should be held by the writer, or sold in original form. There should be no slicing, no dicing, no bundling. The only third party guarantees should be from a co-signer or an insurance company that is willing to underwrite the mortgage ~and~ has the capital to cover losses.

  6. I think James point is, that if Republicans voted for it before, it should be something they want twice as much to vote for now. Now that the Republicans have ZERO ideas they stand for, they go back to the “we won’t tax you” mode.

    The thing they did during Reagan’s time and will do now “Hey, we won’t tax you, but we’ll spend just as much as the Democrats”. So the budget actually ends up worse than it does under Democrats. At least the Democrats try to match costs with revenues. See that’s what you clusterf*#k Republicans don’t understand. Taxes are GOVERNMENT REVENUE–and if you don’t have revenues to match expenses, you end up with debt.

    Personally, I don’t care either way, if the Republicans aren’t going to pass real finance regulation, all of it is moot anyway.

  7. Wouldn’t the economic CRISIS have some impact on that (the stance on the issue)?????

    I mean let’s say you have an idea to improve the levee system of your city. The Elephant party says “Yes, we want the tax”. The Donkey party says “No, we don’t want the tax”. Then guess what—-there’s a massive flood. Now the Elephant party says “NO!!! it’s a tax!!!!” and seeing the flood, the Donkey party now wants the tax. Who do you think is being logical here???

  8. And all this matters why?

  9. Nemo’s point is still valid.

    In your hypothetical example, the Donkey party wasn’t very logical in assessing the benefits of such a tax. Then, after the fact, when its clear there should have been a tax, they are all for it.

    We can play logic games all day long. The real point is that neither party acted to prevent the financial crises because Congress only reacts to events. A pox on both of them.

    Or better, be on the look out for a political party with vision and purpose beyond popularity contests and “reform”.

    How could “Honest Abe” get elected today? He can’t normally, but I think many viewed Obama as offering that hope and he won. If only he were that man. So be on the look out for a political party with reasonable men and women looking to bring about reasonable government.

    The government we have now is clearly broken. People will begin to create new political parties in response and if things continue to get worse (and there’s no reason they shouldn’t) many will join those parties to bring about real change for the people.

  10. “But does reminding Republicans that they used to support something help when you try to get them to support it now? Apparently not, judging from the Medicare cost growth-reduction provisions in the health care reform bill.”

    This largely explains why I have relatively little respect left for conservatives and libertarians that align themselves with the Republican Party. Their knee just instinctively jerks toward defending the interests of the powerful even when it’s inconsistent with their own previously espoused political beliefs. When you dig a little beneath the surface blather about free markets, you’ll find that most of these folks respect nothing but power and wealth and will twist themselves into knots to find a way to justify whatever the powerful and wealthy want.