Time for comrade Paulson to pull the plug on the Fannie and Freddie charade There are many forms of socialism. The version practiced in the US is the most deceitful one I know. An honest, courageous socialist government would say: this is a worthwhile social purpose (financing home ownership, helping my friends on Wall Street); therefore I am going to subsidize it; and here are the additional taxes (or cuts in other public spending) to finance it. Instead the dishonest, spineless socialist policy makers in successive Democratic and Republican admininstrations have systematically tried to hide both the subsidies and size and distribution of the incremental fiscal burden associated with the provision of these subsidies, behind an endless array of opaque arrangements and institutions. Off-balance-sheet vehicles and off-budget financing were the bread and butter of the US federal government long before they became popular in Wall Street and the City of London. The abuse of the Fed as a quasi-fiscal agent of the federal government in the rescue of Bear Stearns is without precedent, and quite possibly without legal justification. The creation of the Delaware SPV that houses $30 billion worth of the most toxic waste from the Bear Stearns balance sheet (with only $1 billion of JP Morgan money standing between the tax payer and the likely losses on the $29 billion committed by the Fed to fund the SPV on a non-recourse basis) is the clearest example of quasi-fiscal obfuscation I have come across in an advanced industrial country. The decision by the Fed to `invite' the primary dealers and their clearers to collude in the (over) pricing of illiquid collateral offered by the primary dealers to the Fed at the newly created TSLF and PDCF (by the Fed accepting the pricing/valuation by the clearers of the illiquid collateral) is another example of the abuse of the Fed as a vehicle for channeling taxpayer-financed subsidies to the primary dealers. This form of socialism for the rich is therefore well-established. (...) So let's call a spade a bloody shovel: nationalise Freddie Mac and Fannie May. They should never have been privatised in the first place. Cost the exercise. Increase taxes or cut other public spending to finance the exercise. But stop pretending. Stop lying about the financial viability of institutions designed to hand out subsidies to favoured constituencies. These GSEs were designed to make losses. They are expected to make losses. If they don't make losses they are not serving their political purpose. So I call on Secretary Paulson, Chairman Bernanke and Director Lockhart to drop the market-friendly fig-leaf. Be a socialist and proud of it. Come out of the red closet. The Soviet Union may have collapsed, but the cause of socialism is alive and well in the USA. Granted, the US version of socialism is imperfect thus far. The federal authorities have mainly intervened to socialise the losses in the financial sector while allowing the profits to continue to be drained off into selected private pockets. But that is bound to be an oversight. It surely cannot be the intention of such committed Marxists to target taxpayer-funded largesse solely at the very rich and at a few favoured, electorally sensitive constituencies. Fannie and Freddie are, or will be, safe in the hands of comrades Paulson, Bernanke and Lockhart.
There are many forms of socialism. The version practiced in the US is the most deceitful one I know. An honest, courageous socialist government would say: this is a worthwhile social purpose (financing home ownership, helping my friends on Wall Street); therefore I am going to subsidize it; and here are the additional taxes (or cuts in other public spending) to finance it.
Instead the dishonest, spineless socialist policy makers in successive Democratic and Republican admininstrations have systematically tried to hide both the subsidies and size and distribution of the incremental fiscal burden associated with the provision of these subsidies, behind an endless array of opaque arrangements and institutions. Off-balance-sheet vehicles and off-budget financing were the bread and butter of the US federal government long before they became popular in Wall Street and the City of London.
The abuse of the Fed as a quasi-fiscal agent of the federal government in the rescue of Bear Stearns is without precedent, and quite possibly without legal justification. The creation of the Delaware SPV that houses $30 billion worth of the most toxic waste from the Bear Stearns balance sheet (with only $1 billion of JP Morgan money standing between the tax payer and the likely losses on the $29 billion committed by the Fed to fund the SPV on a non-recourse basis) is the clearest example of quasi-fiscal obfuscation I have come across in an advanced industrial country. The decision by the Fed to `invite' the primary dealers and their clearers to collude in the (over) pricing of illiquid collateral offered by the primary dealers to the Fed at the newly created TSLF and PDCF (by the Fed accepting the pricing/valuation by the clearers of the illiquid collateral) is another example of the abuse of the Fed as a vehicle for channeling taxpayer-financed subsidies to the primary dealers. This form of socialism for the rich is therefore well-established.
(...)
So let's call a spade a bloody shovel: nationalise Freddie Mac and Fannie May. They should never have been privatised in the first place. Cost the exercise. Increase taxes or cut other public spending to finance the exercise. But stop pretending. Stop lying about the financial viability of institutions designed to hand out subsidies to favoured constituencies. These GSEs were designed to make losses. They are expected to make losses. If they don't make losses they are not serving their political purpose.
So I call on Secretary Paulson, Chairman Bernanke and Director Lockhart to drop the market-friendly fig-leaf. Be a socialist and proud of it. Come out of the red closet. The Soviet Union may have collapsed, but the cause of socialism is alive and well in the USA. Granted, the US version of socialism is imperfect thus far. The federal authorities have mainly intervened to socialise the losses in the financial sector while allowing the profits to continue to be drained off into selected private pockets. But that is bound to be an oversight. It surely cannot be the intention of such committed Marxists to target taxpayer-funded largesse solely at the very rich and at a few favoured, electorally sensitive constituencies. Fannie and Freddie are, or will be, safe in the hands of comrades Paulson, Bernanke and Lockhart.
Ouch.
Not sure if this is only in his blog or also in the print version of the FT. In the long run, we're all dead. John Maynard Keynes
There Was a Class War. The Rich Won It. What happens if there's a class war and only one side bothers to show up and fight it? That's what happened over the last thirty years. There was a class war, and the rich won. Period. It's over, they kicked our knees out from under us, put on their steel toed boots and spent the last thirty years telling us that they were going to trickle on us and we're going to like it and beg for more. Seems like hyperbole? It's just the numbers. The top left shows the manufacturing wage earner's hourly wages. Not "family income" which includes both of you going to work, but hourly wages. The only reason it's goods producing is they go back longer, but other charts show the same pattern. So, if you're an ordinary slob, you haven't had a raise in over 30 years. In fact, your real wage peaked over 30 years ago and it's never recovered. This would be ok if the US hadn't been getting richer, getting more productive, ever since then, but I'm sure you won't be surprised to hear that, well, actually, productivity and whatnot has kept going up. Yet somehow wages didn't.
What happens if there's a class war and only one side bothers to show up and fight it? That's what happened over the last thirty years. There was a class war, and the rich won. Period. It's over, they kicked our knees out from under us, put on their steel toed boots and spent the last thirty years telling us that they were going to trickle on us and we're going to like it and beg for more.
Seems like hyperbole? It's just the numbers. The top left shows the manufacturing wage earner's hourly wages. Not "family income" which includes both of you going to work, but hourly wages. The only reason it's goods producing is they go back longer, but other charts show the same pattern.
So, if you're an ordinary slob, you haven't had a raise in over 30 years. In fact, your real wage peaked over 30 years ago and it's never recovered.
This would be ok if the US hadn't been getting richer, getting more productive, ever since then, but I'm sure you won't be surprised to hear that, well, actually, productivity and whatnot has kept going up. Yet somehow wages didn't.
And he sees the Anglo disease too:
Damon Silvers, whom we can thank for the wages and productivity chart, thinks it has a lot to do with a hostile anti-union environment and with the simultaneous decline of progressive taxation. I'd say he's got a big part of the picture though not all. The key part that he has right is simply that deliberate government policy meant an end to wage increases. Those deliberate government policies benefited the rich greatly, and the people in Washington and New York who made most of the decisions were very close to the people who benefited the most. The main problem was this: real consumption of stuff that requires energy, specifically oil, could not be allowed to increase faster than the combination of oil supply increases and efficiency increases (we now produce twice the real GDP/barrel of oil we did in the 70s). If it did, not only do you get real widespread inflation, but you risk losing control over the price of oil. We are now, of course, seeing what happens when you lose control over the price of oil. The second big problem was that the oilarchies who were getting a lot of money with the new, higher price of oil, were not consumer societies and the money they were gaining was not being spread around. Rather it was pooling in the hands of a few nobles, chiefs and robbers and those folks needed something to spend that money on. Despite what some might think, trashing hotel rooms, doing blow and buying hookers can only use up a small amount of money, at least when you're really really stinking rich. In short, rich oilarchs were sitting on a pile of money and they wanted to buy things with it. Western things. Western... companies. There were two obvious ways to deal with that. You could put on some form of ownership controls, whether formal or informal, or you could make your rich rich enough to compete with their rich by inflating the value of the paper assets that they were competing over. In Europe they mostly chose to just say "no, you can't buy that." American elites were smarter though, they realized that this was a chance to become stinking rich. If our rich people were rich enough, they could bid up the price of companies and assets so the oilarchs couldn't snap them up. So they made themselves rich. They reduced taxation on themselves in a number of ways, they broke union power, they got rid of old New Deal laws that had stopped speculation from getting too bubblicious and they went on a bubble spree - shoving money into various different asset classes, driving them into the stratosphere, taking the profits and then letting the taxpayer eat the loss. They took as much public infrastructure private as they could and they did so for cents on the dollar. They imported manufactured goods from the east to keep goods inflation down and they exported jobs to low cost domiciles to keep wage push inflation down. They also ran, in most periods, very tight dollar policies, so that there were fewer dollars around than the rest of the world needed. Needing dollars badly, people had to sell to the US cheap. And since everyone from outside the US wanted in on whatever the bubble of the day was, they kept giving the US real stuff (oil, goods) for pieces of paper. Those pieces of paper represented something real, at the end of the day: they represented the future. But the future always seems a long way off until suddenly it's today.
The main problem was this: real consumption of stuff that requires energy, specifically oil, could not be allowed to increase faster than the combination of oil supply increases and efficiency increases (we now produce twice the real GDP/barrel of oil we did in the 70s). If it did, not only do you get real widespread inflation, but you risk losing control over the price of oil.
We are now, of course, seeing what happens when you lose control over the price of oil.
The second big problem was that the oilarchies who were getting a lot of money with the new, higher price of oil, were not consumer societies and the money they were gaining was not being spread around. Rather it was pooling in the hands of a few nobles, chiefs and robbers and those folks needed something to spend that money on. Despite what some might think, trashing hotel rooms, doing blow and buying hookers can only use up a small amount of money, at least when you're really really stinking rich.
In short, rich oilarchs were sitting on a pile of money and they wanted to buy things with it. Western things. Western... companies. There were two obvious ways to deal with that. You could put on some form of ownership controls, whether formal or informal, or you could make your rich rich enough to compete with their rich by inflating the value of the paper assets that they were competing over. In Europe they mostly chose to just say "no, you can't buy that." American elites were smarter though, they realized that this was a chance to become stinking rich. If our rich people were rich enough, they could bid up the price of companies and assets so the oilarchs couldn't snap them up.
So they made themselves rich. They reduced taxation on themselves in a number of ways, they broke union power, they got rid of old New Deal laws that had stopped speculation from getting too bubblicious and they went on a bubble spree - shoving money into various different asset classes, driving them into the stratosphere, taking the profits and then letting the taxpayer eat the loss. They took as much public infrastructure private as they could and they did so for cents on the dollar. They imported manufactured goods from the east to keep goods inflation down and they exported jobs to low cost domiciles to keep wage push inflation down.
They also ran, in most periods, very tight dollar policies, so that there were fewer dollars around than the rest of the world needed. Needing dollars badly, people had to sell to the US cheap. And since everyone from outside the US wanted in on whatever the bubble of the day was, they kept giving the US real stuff (oil, goods) for pieces of paper. Those pieces of paper represented something real, at the end of the day: they represented the future. But the future always seems a long way off until suddenly it's today.
They also ran, in most periods, very tight dollar policies, so that there were fewer dollars around than the rest of the world needed. Needing dollars badly, people had to sell to the US cheap. And since everyone from outside the US wanted in on whatever the bubble of the day was, they kept giving the US real stuff (oil, goods) for pieces of paper.
So, what changed? If a basic part of the strategy was to keep an overvalued dollar, then why did the strategy change or become unviable over the last ten years? Did the current bunch of US oligarchs get too greedy? Too incompetent? Did they simply run out of bubbles? Did the rise of the € mean that people didn't want $ as much as before, and this caught them by surprise?
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
So, what changed? If a basic part of the strategy was to keep an overvalued dollar, then why did the strategy change or become unviable over the last ten years?
When the economy is no longer strong but you keep your currency overvalued bad things happen eventually.
The strategy probably "became unviable" (read: the US economy got gutted) due to financialisation and deindustrialisation (as discussed elsewhere on this thread). It probably ceased to be viable by the time of the dot-com crash, and has the dollar has been kept on life support for 8 years, and is now dying. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
...and taking sterling with it, looks like.
it's hard to imagine how we'd weather all this yurp if we still all had separate currencies, it's going to be bad enough anyway, but if the lira were still having to try and stand in this hurricane....shudder
it's really making me appreciate the wisdom of having consolidated currencies, how long before the uk gets the memo?
if this keeps up, the people will be begging for a referendum to say 'yes' to, so they can get back on the bus, no matter what poison the Daily euro-hate Mail peddles. ~"When an inner situation is not made conscious, it appears outside as fate." Karl Jung~
Is that true and valid theory/likely to happen or more neo-lib propaganda?
If so, is that the only solution better than what is happening now? "Schiller sprach zu Goethe, Steck in dem Arsch die Flöte! Goethe sagte zu Schiller, Mein Arsch ist kein Triller!"
I think I got that right with the correct terms, I am still trying to learn all these economic terms and dynamics with a crash course and steep learning curve ... so I could have that all wrong, it's just my understanding at the moment "Schiller sprach zu Goethe, Steck in dem Arsch die Flöte! Goethe sagte zu Schiller, Mein Arsch ist kein Triller!"
So let's call a spade a bloody shovel: nationalise Freddie Mac and Fannie May. They should never have been privatised in the first place.
In 1968, to remove the activity of Fannie Mae from the annual balance sheet of the federal budget, it was converted into a private corporation.[8] Fannie Mae ceased to be the guarantor of government-issued mortgages, and that responsibility was transferred to the new Government National Mortgage Association (Ginnie Mae).
