Don’t Panic – Really?

Regardless of what you think of their politics, the brains behind The Wall Street Journal’s Opinion pages are hefty. When they write the headline that “There is No Reason to Panic,” I’m guessing that they know full well the denial formula (denial in headline = opposite of denial) and also that many of their readers will devour the copy below the headline.

The column, by a senior fellow at the American Enterprise Institute, focuses in on the U.S. government’s decision to prop up faltering Fannie Mae and Freddie Mac. Yet, the piece’s strongest worded insights center less on the troubles of our stockholder-owned mortgage companies – which also happen to be government-sponsored enterprise (or “GSEs” – an abbreviation we’ll be seeing a lot this month) – and more on the Federal Reserve’s (and Treasury Department’s) proposal to oversee investment banks in a more hands-on manner.

“The only reason the Fed might want to regulate the investment banks is that it believes itself to be somehow at risk,” notes author Peter Wallison, former White House counsel (under President Reagan) and former general counsel to the Treasury Department. Wallison, who has published a report on the notion of privatizing Fannie and Freddie, argues that the market will view the Fed’s “backing” investment banks when they get into trouble as carte blanche to take ill-advised risks.