Wall Street Likes the Bailout plus Drill, Drill, Drill

(By Larry Kudlow/National Review Online) - Can bad Washington policies sometimes work to the benefit of financial markets? In the short run the answer is certainly yes. Nothing illustrates this point better than the gigantic Fannie-Freddie housing bailout bill that will soon pass Congress and be signed into law by President Bush.

This is a perfect example of Washington’s new too-big-to-fail corporatism, or even semi-socialism. Fannie and Freddie are getting their dream wish lists of expanded loans, expanded debt, a full-fledged explicit government guarantee, and virtually nothing in the way of real reform, all in return for Uncle Sam’s imprimatur.

The only remote possibility for future GSE reform of political lobbying, huge compensations, and a downsized internal portfolio, or even future privatization moves, rests solely on the new regulatory powers embedded in the bill. But the chances of a strongman regulator actually succeeding in changing these government housing banks are slim to none in my view. Democrats running the House and Senate banking committees will never permit it. The GSE political pressures are too strong. And no reforms were codified in the actual bill.