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Moving Liabilities off Balance Sheet Nothing New

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Via Greg Mankiw, The New Yorker looks at how LBJ moved Fannie and Freddie off the government’s balance sheet (making them public) in order to fund the Vietnam War. What’s interesting in this is twofold:

  1. During this housing crisis, mark-to-market rules have caused the iBanks to recognize securities that they have moved off the balance sheet.
  2. Issues with both LBJ’s decision and the more current mortgage security situation have come to light in the current market.

This just goes to show that a lot of bad policy can be covered up as markets expand. Maybe its a good thing that the housing bubble popped. Now we know about these problems and can make decisions with them in mind.

UPDATE @ 11:55a: I don’t know what happened with the title. It was missing the final word. Now it makes a little more sense than before.

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Written by walonline

July 23, 2008 at 9:08 am

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