Monday, September 14, 2009

Government Intervention in the Economy

It's easy to forget how significantly the government's role in the economy has changed during the course of the past year.

Edmund Andrews
and David Sanger, in an article in the Times today (here), brought home to me the hugeness of the intervention:
  • 9 out of 10 mortgages are now financed by the government; the Fed has purchased $700 billion in mortgage-backed securities.

  • Government spending accounts for 26% of economic activity (the largest percentage since World War II).

  • The government owns 60% of General Motors and 80% of AIG; the article says that some of the $20 billion TARP investment in GM and Chrysler will never be recovered (interestingly, the new CEO at AIG, Robert H. Benmosche, has a salary of $9 million (?!)).

  • The FDIC guarantees $300 billion of bonds issued by banks.
A couple of thoughts:
  1. It's no wonder people are reluctant on health care reform: even for someone like me who reads all those Krugman articles about the importance of government spending during the crisis, the enormity of the government's intervention is rather overwhelming.
  2. Isn't all of the government lending just kicking-the-can-down-the-road on our country being overly-leveraged? (The writers address this issue thus: "As the government backs away from its rescue operations, economists and others worry about unknown consequences. Some analysts are already predicting that mortgage rates will bump higher when the Fed stops buying mortgage securities, potentially delaying a recovery in housing.")

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