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Palin Makes Her First Gaffe
September 8, 2008 11:50 AM

Gov. Sarah Palin made her first potentially major gaffe during her time on the national scene while discussing the developments of the perilous housing market this past weekend.
Speaking before voters in Colorado Springs, the Republican vice presidential nominee claimed that lending giants Fannie Mae and Freddie Mac had "gotten too big and too expensive to the taxpayers." The companies, as McClatchy reported, "aren't taxpayer funded but operate as private companies. The takeover may result in a taxpayer bailout during reorganization."

Economists and analysts pounced on the misstatement, which came before the government had spent funds bailing the two entities out, saying it demonstrated a lack of understanding about one of the key economic issues likely to face the next administration.

"You would like to think that someone who is going to be vice president and conceivable president would know what Fannie and Freddie do," said Dean Baker, co-director of the Center for Economic and Policy Research. "These are huge institutions and they are absolutely central to our country's mortgage debt. To not have a clue what they do doesn't speak well for her, I'd say."

Added Andrew Jakabovics, an economic analyst for the progressive think tank, Center for American Progress: "It is somewhat nonsensical because up until yesterday there was sort of no public funding there. Even today they haven't drawn down any of the credit line they have given to Treasury. 'Gotten too big and too expensive' are two separate things. The too big has been a conservative mantra for a while and there is something to be said of that in that they hold about half of the mortgage guarantees that are out there. And in the last year they have been responsible for roughly 80 percent out there. The 'too expensive to tax payers,' I don't know where that comes from."

Even conservative analysts acknowledged that the statement simply did not hold true.

"Heretofore, if the treasury had a balance sheet there would have been a liability but there was never a taxpayer payment before [the bailout]," said Gerald P. O'Driscoll, an economist with the Cato Institute. "[Fannie and Freddie] were not taxpayer funded. They had taxpayer guarantee, which is worth something, especially in the stock market..."

The Palin misstatement comes as Fannie and Freddie are set to be placed under control of the Federal Housing Finance Agency, created by President Bush in late July to help regulate the two housing giants. Both presidential candidates have been critical of Fannie and Freddie but neither is opposed to the government's plans for the companies. The treasury is hoping that the government's role will help stabilize credit markets and incentive more mortgage lending.

"With the takeover they will be taxpayer funded," said O'Driscoll. "As I understand it they get to withdraw funds with permission going forward."

How politically significant a "gaffe" it is remains to be seen. The major concern about Palin's position on the ticket is that she lacks the economic and foreign policy wherewithal to serve as vice president. This certainly doesn't help on that front. At the same time, the remark went almost entirely unnoticed over the weekend and discussions on the developments of the housing market can be difficult to process for even the most attuned voter.

There are varying explanations that could be offered for Palin's defense. As O'Driscoll noted, both Fannie and Freddie "were hybrid institutions because they had private ownership but... an implicit government guarantee which people thought at the end of the day was explicit." Meanwhile, as Baker noted, as of July the two lenders were being offered low market interest rates by the fed again, theoretically, at the taxpayer's expense. But, he added, "I kind of doubt she had any sense of that."

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