Capitalism for the Poor, Socialism for the Wealthy
Most Americans believe they possess a natural aversion to socialism. Charges of "socialized medicine" have derailed much-needed health care reforms for years.
After all, we are a capitalist society, we believe in personal responsibility, lifting ourselves by our bootstraps -- at least that is the stereotype we like to promote.
The version closer to reality is America offers capitalism to low-income individuals, but is more than willing to unleash its socialist impulses for the wealthy.
If we were truly a capitalist society Chrysler would not exist today, making cars that don't sell. It would have gone out of business decades ago. By passing the $1.5 billion "Chrysler Corporation Loan Guarantee Act of 1979," Congress allowed Chrysler to avoid bankruptcy, stay in business, and save jobs.
However one feels about the Chrysler bailout, it was not capitalism. But recent Wall Street financial fiascos may cause us to long for the return of the Chrysler K-car.
Congress is now on the verge of bailing out Fannie Mae and Freddie Mac, the government created but privately owned, profit-making housing finance companies responsible for nearly half of the U.S. mortgage market. Collectively, they own or guarantee an estimated $5 trillion of debt.
Fannie Mae was created in 1938, under President Roosevelt, at a time when millions of families could not become homeowners, or risked losing their homes, for lack of a consistent supply of mortgage funds across America.
In 1968, Fannie Mae was re-chartered by Congress as a shareholder-owned company, funded solely with private capital raised from investors on Wall Street and around the world.
Fannie and Freddie were able to borrow money at a discount based on the assumption that the government would stand behind their debts if need be. Their operations were regulated, limited by laws detailing what mortgages they could assume.
But as these institutions grew and profited, they became more powerful behaving more like a publicly traded company than regulated government entity. The executives of each institution were compensated like any other Fortune 500 CEO, pocketing huge salaries.
It was reported that Freddie Mac Chair, Richard Syron received more than $18 million in compensation last year, while Fannie Mae CEO Daniel Mudd received $13.4 million in 2007 while the company lost $2.1 billion and its shares fell 33 percent.
But with foreclosures soaring, Freddie and Fannie have sustained billions in losses, their shares have plummeted, there is also talk that bankruptcy in the future of these two institutions designed to maintain confidence in the lending markets. The American taxpayer is being asked to step in and save the day.
But Fannie and Freddie are different in that they are private when they want to be and public when they need to be.
As former Treasury Secretary, Lawrence Summers recently opined, "The illusion that the companies (Fannie and Freddie) were doing virtuous work made it impossible to build a political case for serious regulation."
He adds, "When there were social failures the companies always blamed their need to perform for the shareholders. When there were business failures it was always the result of their social obligations."
This leads Summers to conclude that the gains were being privatized and the losses socialized. This is great for the shareholder, but hardly in the best interest of the society as a whole.
With the lending markets already experiencing a lack of confidence, there is the anticipation that the home mortgage crisis will worsen. The problems created by the subprime lending are expected to bleed into the more traditional lending markets.
I believe the government must step in order to restore confidence. But there is bit of irony in its doing so.
Like Fannie and Freddie, the American economy is also a hybrid of private and public participation. We are hardly a socialist society, but we are not paragons of capitalisms.
The American taxpayer cannot continue to serve as the ultimate guarantor to otherwise unregulated companies. But we tend to be much more forgiving of the failures of Wall Street than those in need of public assistance.
To the poor we say: "Get a job!" To Wall Street we say: "How much do you need?"
Follow Byron Williams on Twitter: www.twitter.com/byronspeaks
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"It was reported that Freddie Mac Chair, Richard Syron received more than $18 million in compensation last year, while Fannie Mae CEO Daniel Mudd received $13.4 million in 2007 while the company lost $2.1 billion and its shares fell 33 percent."
If this were China, Richard Syron and Daniel Mudd would be dead either executed by the government or by their own hand. Alas, this is the US where they get to walk away with millions and a thank you from the fed.
Meanwhile we have a prison system stuffed with men and women who did nothing more than sell a few ounces of drugs to willing customers.
Let's bail out freddie and fannie, sure, but only if Mudd and Syron are stripped of their ill gotten gain and put behind bars. That should sober the financial industry up.
"...but only if Mudd and Syron are stripped of their ill gotten gain ..."
Let's not forget they stock holders. Many of whom are institutional "investors." These people say "free enterprise for profits" and "socialize the risk." The stock holders should loose everything. They should gain nothing. The American public should not pay for their folly.
What makes these kinds of bailouts so utterly, utterly disgusting is this one sentence:
"It was reported that Freddie Mac Chair, Richard Syron received more than $18 million in compensation last year, while Fannie Mae CEO Daniel Mudd received $13.4 million in 2007 while the company lost $2.1 billion and its shares fell 33 percent."
That is what makes this fraud perpetrated by Congress and the banks criminal.
And this is why it is absolutely clear that the government is 100% corrupt. The government is now run by the lobbyists.
How can this stand??? And worse, how can it ever really be fixed? The people have grown soft and debt dependent.
We, the middle class, are all a bunch of sharecroppers - we don't really own anything - mortgaged up to our eyeballs and swimming in debt. And that 'ownership society' crap touted by George Bush - what a lot of bs - we should have seen it coming when he tried to privatize social security or when the funds for Iraq were excluded from the budget. What a shell game. We are doomed.
We are not market driven like capitalism is supposed
to work. It is Disaster Capitalism that demoralizes the poor
and middle class, removing little by little , the stop-gap
programs that keep everyone from being really destitute.
No programs are viable any more. They have been stripped
long ago for the benefit of the very wealthy to continue to
be very wealthy. And Bush has been telling us that for
the last 8 years. When the economy falls from recession to
depression, they will be ready with a new program.
How about the government bail out all of the homeowners, COOP and Condo owners with mortgages? Pay the mortgage in full for everyone in the United States now. That keeps people in their homes and renters in their apartments. The banks/mortgage companies would become solvent. Americans would begin to spend again because their monthly costs are reduced. Now that's a stimulus package.
I know, I know it won't happen. To borrow a "joke" - working people who can't pay their mortgages are called deadbeats but if you can't pay hundreds of thousands of loans you are called Savings & Loan, Bear Stearns, Freddie Mac or Fannie Mae. We won't discuss the wealthy rice farmers and ranchers and others like them that receive government welfare or the billion dollar tax breaks for corporations.
That's another idea, stop all government "subsidies" and tax breaks for all businesses including churches. Land owners pay tax. Stop taxing peoples income. That will get people to spend their money again also.
I'll stop dreaming and get off the soap box now - I'm just weary of these parasitic corporations and the government feeding off of people.
Thgats kind of it really and the purest definition of moral hazard
Those of us who were responsible, did not buy beyond our means nor fell for any gimmick financing tricks, and pay our bills on time get the shaft - we are "rewarded" by not only picking up the tab for the reckless behavior of the financial sector with our tax dollars, we are also seeing the inflatioon caused by it sap our savings and retirements, and the decline in our property values
Way to go Alan "bubble boy" Greedspan
Just wanted to say that this them versus us mentality, the irresponsible borrowers (the grasshoppers) versus the responsible borrowers (the ants) is an illusion. The grasshoppers are taxpayers too - they didn't cause this mess - the banks did - with their predatory lending practices and easy, let's give everyone credit mentality. They love to give credit, regardless of income (my god, they give college students credit cards on campus) because they love those late fees and interest payments. And they love it when we blame each other for the economic mess - they love it when we 'forget' who the real villains are and fight amongst ourselves.
It isn't the guy whose house was foreclosed or who can't pay off his credit card bill because he used his credit card to pay for his uninsured wife's health care, it's the guys who made those nasty, shady loans and a Congress who calls universal health coverage socialism.
And those CEOs walking away with millions?? They are worse than villains - but in this f@#$ed-up society of ours we have been taught to think of them as titans of finance and to emulate them. That's why American middle class kids have no work ethic and think they should be millionaires by the time they're 23 or else they're losers.
The Republicans practice corporate socialism while convincing the masses that socialism is bad. Of course, the Democrats have been going along with them.
Republican = Corporate Socialist, Feudal Masses.
what i disagree with is the too poorly used term "capitalism". if we really could practice capitalism, it would out-trump the (agreed) socialism that the wealthy are being afforded. a more accurate term would be corporatism for the poor, fascism for the rich.
person status vs. corporations, lobby whoring, and a complicit body of politicians have wrecked any understanding of true free-market capitalism and its benefits. if we were allowed to practice our constitution, these bums would have to compete like the rest of us (another point i agree with).
but make no mistake, we do not have capitalism or free markets. we have managed markets via fascist corporatism, controlled by an illegal centralized cabal, the federal reserve.
and now we're considering giving them more power?
And what's the answer? The corruption is clear for all to see. Is someone like Obama or a true democratic majority in Congress gonna clean up this government for and by the corporations? It is all so overwhelming.
The bailouts are only the tip of the iceberg of "Corporate Welfare." Byron Williams is right on the money titling his article as he did. It says it all.
SCG: on that bailout 'back in the day', what jobs were saved vs. those which would have migrated to the other auto mfrs.? That was when the U.S. still had a valid mfr. base. 'Too big to fail' then, eh? I would have let Chrlsyler Deep Six, cost taxpayers nothing, and jobs would have gone to the other companies, all in all, a win-win situation.
I see the cheerleaders for 'the commons' now crowing (again!) that capitalism has failed -- meanwhile turning a blind eye to Jamie Dimon on the board to the Fed Res Bank of NY. Surely somewhat a conflict of interest given his exalted position at JP Morgan Chase? Is this surely not mercantilism, as has been tried since Henry Clay et al?
The Chrysler "bailout" was a LOAN. and paid back in full with interest as well.
hundreds of thousands of jobs depended on a healthy auto industry then as now.
People used to realize how important manufacturing was to the middle class, our economic health and national security unlike today, where most have written off manufacturing and left it for dead. Little wonder why we have a major erosion of the middle class standard of living as our great prosperity and innovation engine is grinding to a halt.
The main differences between the Chrysler bailout of the 70's and the current Wall Street bailouts
Lee Iacocca used the goverment loan to actually turn the company around and he paid it back ahead of schedule and with interest. There were many strings attached. At the time people in this country also realized the importance that manufacturing had for our economic health and national security
Todays bailouts are nothing like the 70's Chrylser loans - they are purely taxpayer money used to prop up and preserve the profits of fianacial institutions who profitted greatly from the party they had over the last decade - there are no strings attached, the taxpayer will never see a dime back, there is little talk of increased scrutiny, transparency and tighter regulation as a condition of recieving the aid. And unlike manufacturing, the finacial industry has done little to spread and share the prosperity of this nation more fairly and widely
Thank you for that. I had forgotten the details of the Chrysler bailout, and the turnaround, and the payback. And wasn't there more of a feeling then that we were *all* in trouble if Chrysler failed? Meaning that we were all pulling for them to succeed, and keep the company going. The talk of lost jobs then was talk of real people in trouble, and we could all identify with their sense of doom, which got turned to relief. Good points in your post.
good job.
Read this article, tell me the poor aren't living off the backs of us by choice:
http://www.npr.org/templates/story/story.php?storyId=92592545
Hey Mother Teresa ? Are the homeless feeding off you too?
One corporation can steal more from US taxpayers in one day than those people would go thru in their lifetimes.
If we have to support people or corporations, I propose we choose PEOPLE.
hear hear
And what about those animals? If we all eat less meat we could create a happier, more humane planet.
The rich got rich off the backs of the poor in the first place.
Some people are deadbeats and need to be
removed from social services. But it's very
hard when medical expenses or loss of job
put you in the social welfare catagory. It is
very demeaning to have paid your own way
and find you literally have to beg to get help.
Hope you never experience it Unbias.
Yep, the poor are just living it up, having the time of their lives, living the good life on the backs of us middle class folks. Good. Because soon a lot more of us may be joining them.
This is like those Welfare Queens getting rich in the 80s - one big ugly myth meant to keep middle class voters voting against their own interests . When will the middle class get smart and stop blaming the poor for its problems? We need to focus on the real culprits - the CEOs earning 250 times the wage of ordinary workers - not the poor folk who are nickle and diming their way through life. Give 'em a break. Guys like Syron and his buddies who walk away with millions now they are real criminals.
Why are you pointing the finger of blame at these poor sods in response to an article that says the CEOs fleeced Fannie Mae and Freddie Mac for millions upon milliions of our hard earned dollars? Who are you really UnbiasView? A corporate lobbyist? 'Cause you certainly ain't unbiased.
This is right on.....I would however throw in the little bone, that we bailed out Chrysler who then sold out (someone pocketed the sale price, and it wasn't the taxpayers).
Like every other corporation, they think they have a God Given American Right to use our air, our water, our land, our workers, our subsidies, our outright giveaways and corporate welfare, then they leave. They create huge environmental problems, then boogie to another country, all the time maintaining their market share here in U.S.
Companies ever since 2000 have been busting their UNIONS and their PENSIONS by declaring bankruptcy. The Buuuush people made sure it became a lot harder for you and me to declare bankruptcy at the same time they made it easier for corporations. Oh, and the added side benefit of the bankruptcy was somehow a legal excuse to ditch their Pension obligations and dissolve the Unions.
Corporations only need a bare minimum of organized corruption to make life sweet for them. Instead, we handed the keys over to them and their lobbyists. Regulation, Bankruptcy, Anti-Union, Bail Out, Hand Out, No Bid, WarProfiteering UNAMERICANS who are bleeding us absolutely dry.
We handed over the keys?? You didn't, I didn't. So who did?
The Congress with its 8% approval rating should be removed - all of them - so I guess I just answered myself. The voters need to get mad enough and smart enough to know that the people who handed over the keys are sitting in the Congress and when they 'retire' becoming the lobbyists. There should be a million worker march on Washington to demand justice. And then we should take our anger to the polling booth.
When will people stop voting against their own interests?? Maybe when they are sick and tired and poor enough - which is right around the proverbial corner.
byron, no one agrees with the whole socialism/capitalism aphorism more than I. But we must preserve Fannie and Freddie or risk giving up the last of FDR's legacy and with it the ability of the average American to own a home. This, below, from a former CEO of Fannie, appeared in the Washington Post:
"However, ideologues in the Bush administration and commercial competitors of Fannie and Freddie have skillfully manipulated the markets to undermine Fannie and Freddie for more than six years. The result has been a weakening of the two linchpins of the housing finance system just when they are needed most."
Did you get that? "Skillfully manipulated...to undermine..."
This from a man who was the Chairman and CEO of Fannie Mae!
If ever there were a more transparent money and power grab going on in DC and on Wall Street, it would require armies in the streets! Reinstate the rules under which it had run for decades, prosecute any who have broken the law, but protect and save Fannie for the future of our country and its homeowners.
http://www.washingtonpost.com/wp-dyn/content/article/2008/07/15/AR2008071502426.html
you first say that we should all pay to preserve fdr's legacy and so forth, and then go on to say that those responsible for the mess knew what they were doing. i say make them pay first and pay the most.
as in everything they've got.
Yes, good points. They should pay everything they got because the chaos they wreaked is literally destroying whole communities.
FDR created Fannie and Freddie as public entities.
They have been "privatized"
Thanks for the excellent referral to the article in the post. It was very enlightening. These days, however, the more information I have, the more depressed I become. You are right 'a more transparent money and power grab' would require armies in the street. Maybe that's what it's gonna have to come down to.
There, you've said it! Corporate welfare has found its haven in the U.S. This year, we've surpassed the $500 billion mark by promising to have our children and children's children pay it off. Cute!
Let's hope our children's children are a very sturdy lot.
In the meantime, get ready for a very scary ride.
When Fannie and/or Freddie prosper, the shareholders get the dough. When they flounder, the taxpayer pays. The government has become a racketeer-influenced and corrupt organization and should be dissolved and reorganized. It throws our tax monies to their buddies, right-wing dictators, and other undeserving crooks while the people--the payors--are left to cringe while the jails fill up with small-time crooks.
. . . . with small time crooks and political dissidents next.
For what does it mean that we, the US of A, have one of the largest 'correctional' systems in the known world? (Forgetting for a moment our black sites and gitmos.) And what does it mean when we, the US of A, incarcerate whole generations of young men and women, here, in the land of the free, for crimes that pale in comparison to these crimes of corporate greed? For think - what is more devastating - the meltdown of the financial institutions globally or selling two ounces of crack cocaine? Yet the corporate titans jet away to their homes in the islands while victims of the war on drugs languish in our prisons - of course, the creation and stocking of prisons is a government jobs program so to speak.
To me it means that the revolution must be just around the corner. Power to the people who still care about freedom and true democracy.
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