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To me, the most bizarre turn in this year's campaign has been the Republicans' ability to gain any traction with the question, "Are you better off than four years ago?"  Four years ago, the financial system was in collapse, the stock market in free-fall, and I personally felt as though my livelihood was slipping away.  Today, the financial system has a measure of stability, the market has recovered substantially, and business isn't too bad.  Things are much better than four years ago.

This is the first of a series, in which I'll trace the key daily headlines of four years ago, with a view toward answering the Republicans' strange, rhetorical question.

Sunday, September 7, 2008, was one of those horrible Sundays in the late summer and fall of that year when Treasury Secretary Paulson, Fed Chair Bernanke, and New York Fed President Geithner had to meet and agree on and announce some drastic financial measure by evening Eastern time, when Monday morning trading in Asian markets would start.  That weekend, the victims were Fannie Mae and Freddie Mac, the government-sponsored mortgage firms, which were collapsing under the weight of excessive lending in an environment of falling house prices and cascading foreclosures.  

As the New York Times reported

The Bush administration seized control of the nation’s two largest mortgage finance companies on Sunday, seeking to shrink drastically their outsize influence on Wall Street and on Capitol Hill while at the same time counting on them to pull the nation out of its worst housing crisis in decades.

- snip -

While the government takeover seemed to catch some financial experts by surprise, Treasury officials appeared to have little choice, with the credit markets in a tailspin and investors reluctant to buy mortgages with even a hint of risk. Fannie and Freddie now guarantee about 70 percent of all new home loans, said Mr. Lockhart, the chief regulator of the companies.

The initial reaction to the plan was mostly positive. Senator John McCain, the Republican nominee for president, said on CBS’s “Face the Nation” on Sunday that he supported the Treasury move, but he also implicitly criticized the Bush administration’s oversight.

At the time, many political observers saw the demise of Fannie and Freddie as a failure of crony capitalism -- they were private firms with a government-sponsored inside track to a favorable position in the mortgage market, and enjoyed an implicit government guarantee, which the takeover of September 7, 2008 made official.  Originally, that inside track deal was Fannie and Freddie's compensation for providing cheap mortgage financing for millions of homebuyers.  As the mortgage crisis of 2007 wore on, however
during the housing boom, they misused the government’s support to enrich shareholders and executives by backing millions of shoddy loans. Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

Fannie and Freddie still exist, more or less, under Treasury ownership, and they have finally, after all these years, begun to return some dividends to the Treasury.  But think about the time of the government takeover -- They were private businesses with a special franchise, which they then abused as the rules governing them relaxed and the housing boom accelerated.  Once housing prices began to fall, their portfolio of mortgages slipped below the waterline, and they threatened to become insolvent.  Secretary Paulson felt that if they failed, the effects of their failure could have cascaded into a systemic financial catastrophe, so the Bush Treasury department stepped in and took them over -- bailed them out, you might say.

That was four years ago today.  And they ask if we're better off today?

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