I have had several requests to comment on the Housing and Economic Recovery Act of 2008.

This afternoon I read hundreds of pages of bill language. Essentially, my take on the bill is that Fannie Mae and Freddie Mac have issued more debt than can be paid back, so the solution is to have the US government essentially assume responsibility for their debt until such time as the fact that the US government cannot service its own debt is addressed.

By clearly signaling to the market that the US government stands behind Fannie Mae and Freddie Mac’s debt, this new law actually increases the national debt from $9.5 trillion to $14.8 trillion overnight (that is a $5.3 trillion increase as opposed to the $800 billion increase provided for in the debt limit increase accompanying the bill). Not surprisingly, a lot of pork needs to be added to pay a lot of people to go along.

A more appropriate bill title would be the “Housing and Economic Takeover Act of 2008.” Rather than declaring the New World Order, we are apparently going to legislate it sector by sector.

Here is the bill language:

Housing and Economic Recovery Act of 2008

Here is a rosy summary from the Senate Finance Committee:

Senate Finance Summary – Housing and Economic Recovery Act of 2008

The best overview so far is from Larry Lindsey. Lindsey was one of the more excellent governors of the Federal Reserve. Lindsay had to resign from the Bush Administration in 2002 as Director of the National Economic Council when he had to the good sense to warn that the Iraq War would be expensive.

Hank Paulson’s Fannie Gamble

As Lindsay points out, the number of porky add-ons in this bill are stupefying. Bloomberg provides a review of one:

Fed Loans to Banks Made Easier By Fannie Mae Rescue

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