|
||
Wall Street Socialism
This weekend, Treasury Secretary Henry Paulson, former head of the Goldman Sachs investment house, provided us with a perfect demonstration of Wall Street socialism.
He announced that the Bush administration would seek congressional approval to bail out Fanny Mae and Freddy Mac, the government created, but privately owned, profit-making housing finance companies that hold or guarantee nearly half of the US mortgage market -- some $5 trillion in debt. Paulson seeks and will get an unlimited line of credit to guarantee their debt, as well as authority to purchase their shares to supplement their capital base. The Federal Reserve announced it was ready to provide lending while waiting for Congress to act. Paulson said the new subsidies were designed to sustain the two institutions in "their current form."
Perfect. The two institutions have always been more foul than fish. Created by the government in the 1930s to help lubricate the US mortgage market by buying mortgages from the banks so they would have the cash to make more mortgages, Fanny and Freddy were able to borrow money at a discount because of a widely shared assumption that the government would stand behind their debts if push came to shove. Their operations were regulated, limited by laws detailing what mortgages they could assume (They were essentially prohibited from diving directly into the subprime muck). But as they grew and profited, their executives pocketed lavish salaries and bonuses -- giving them an incentive to grow even more (and as we discovered earlier this decade, to cook the books). Last year, for example, the Chair of Freddie Mac took home a cool $18,289,575.
Fannie Mae CEO Daniel Mudd reaped a 7 percent rise in pay to $13.4 million in 2007 while the company lost $2/1 billion and its shared fell 33%. Nice work if you can get it.
Now with the bursting of the housing bubble, push surely has come to shove. Foreclosures are soaring, the two institutions have sustained billions in losses, their shares have plummeted, and, according to former St. Louis Federal Reserve President William Poole, one and possibly both would be bankrupt if their assets were marked down to their current market value.
So now the Bush administration proposes to make the federal guarantee explicit and even to offer taxpayer money to help recapitalize the two banks if needed. Everything has been nationalized -- except the profits and the pay scales of the bank's executives.
That's right. If the guarantees work, private speculators, having driven the stock down, will clean up on the upside. And the bank's CEO's will continue to pocket the multi-million dollar salaries that are de rigueur on Wall Street. Call it Wall Street socialism. Their losses are socialized; their profits are pocketed. You and I will pay for their failures. And if conservatives have their way, their families will pocket their successes, without even having to pay a tax for the transfer of the estates we've helped to create.
These enterprises are operating on our tab now -- completely. Why not just nationalize them, as even that font of economic convention, Sabastian Mallaby suggested yesterday in the Washington Post. Sure, we'd have to add the $5 trillion in debt to the federal balance sheet, but we could add the assets also. And after Paulson's announcement, global investors are already toting up their debts onto the federal balance sheet.
Why pay dividends to shareholders when they are essentially playing with our money? Why pay managers of public enterprises the bloated pay packages of Wall Street speculators? Why allow them to finance lobbyists to shield them from accountability? The fiction of their separate existence has been exploded; let's save the dough and run them efficiently.
Fannie Mae and Freddy Mac are only the most recent and extreme version of Wall Street socialism. The Bush administration has done essentially the same for private providers of college loans. The Federal Reserve has made taxpayers the guarantor not simply of the banks that it regulates, but the shadow banking system of hedge funds and investment houses that it doesn't regulate. After the bailout of Bear Sterns, they basically are gambling with our money. The Federal Reserve has now traded more than $500 billion in federal bonds for the toxic paper of private banks and investment houses, some $200 billion of it in mortgage backed securities, worth dimes on the dollar. This massive subsidy -- justified as necessary to keep the banking system afloat -- is not accompanied by limits on what gambles the speculators can make, how much debt they can take on, what rewards they can pocket. They are playing with house money -- not exactly an incentive for prudence.
Republicans seem ideologically committed to these kinds of arrangements. In Medicare for example, conservatives have demanded that the government subsidize private insurance companies to compete with public Medicare, even though Medicare provides healthcare much less expensively. When Bush and the DeLay Congress drove through the prescription drug bill, they included a provision that PROHIBITS Medicare from negotiating cheaper prices for drugs, effectively turning the bill from a benefit to Seniors to a multi-billion subsidy to private drug companies (not surprisingly, after Wall Street, the drug companies finance one of the most lavish and powerful lobbies in Washington).
Now it makes sense to me for the government to subsidize housing mortgages and college loans. Encouraging home ownership and higher education are central to sustaining the broad middle class that is America's triumph. But I can't imagine why we need to let bankers and investors pocket the upside, when they are playing with our money and we're covering their losses. Public enterprise may be staid and bureaucratic, but it's a lot cheaper and more efficient than the perils of Wall Street socialism.
Loading comments…
Want to reply to a comment? Hint: Click "Reply" at the bottom of the comment; after being approved your comment will appear directly underneath the comment you replied to
This article makes an excellent point. We can't get health care for all of our citizens, but we have plenty of money to bail out the irresponsible people profitting from these ventures. I remember the good old days when competence was a basic requirement. Now, it seems the want ads should say, "Don't know what you're doing? Want a chance to make millions while running a company in the ground? Then become a CEO. We have plenty of overpaying opportunities for people like you. If you fail, that's fine. You'll still make tons of money while everyone else pays the debt. You'll get a raise while your employees lose their jobs and insurance." What is going on here? Why do we keep rewarding the incompetence of people while people who know what they're doing are lucky to be able to find a job in this economy?
Crony capitalism: is it communism, but only for a chosen few?
Why complain of socialism or communism,most of this blog are that. Control the means production?. Next it will be your business, and oh, lets tax you to 60% plus or 90% better like Norway? Bring on the Poliburo, oh it did not work in the USSR??. It does not matter, we have a right to be stupid... A la pared!!!To the wall all who disagree. Join the future...????
The government has to back these big institutions in this crisis caused by excessive deregulation by the Gramm-led Republic Party dimwits. Without government aid now, the whole system collapses, and the middle class and poor will suffer the most. The answer is to restore the Glass-Steagel act put in by Roosevelt to prevent such calamities. The Republic Party clamors for deregulation. But without a fair playing field with the same rules for everyone, greed takes over and the teams start making up their own rules. Imagine an NBA game without rules and refs. Deregulation encourages excessive and toxic greed, while smart regulation controls it to everyone's benefit. To those who wnat Communism instead of capitalism, no thanks. Capitalism works fine, with fair rules for everyone, including strong competition.
Got that right.
Just regulating the Oil speculation market would cut the cost of oil and gas by 50%, probably enough to end the recession and save a lot of those mortgages.
End the Enron Loophole!
Banking, Insurance, medicine and pharmeceutical companies do not function appropriately to the best interests of the public when permitted to operate in a free capitalistic economy. Our founding fathers were correct not to nationalize the banks in our tenuous infancy, but society needs to rethink that formula now. If we're just going to bail them out when they get in trouble, we might as well federalize them and run them at cost for american citizens, instead of having the banks cyphon off wealth on every business transaction on earth, doing very little in the way of providing service.
I've been self employed my whole adult life. If my company loses money, then I lose money. How can these 2 top executives take over 31 million dollars out of the company they ran and then get bailed out by the gov't. The gov't didn't try to bail me out when the housing market started to and continues now to crash. They should have to pay back their salaries to the companies as a condition of the bailout. All the fatcats that are making more than 250,000.00 per year should pay back everything over 250,000.00. At that salary, they would still be in the top 5% of money earners in the U.S. Maybe they would try to do a better job in the future. They would probably complain they couldn't make it on $ 250,000.00. Too Bad. Does anyone else think it is ridiculous what the top brass in companies are making these days? No one that works for someone else needs to make that kind of money. If you own the company and you are taking all the risk, then you deserve whatever you can make.
When Karl Marx and Friedich Engels wrote the Communist Manifesto little did they know how prophetic their work would be and that the vehicle to that means would be the greed of the Republican Party and their policy of supply side economics. In the 150 years since those writings and over the last hundred years through expansionism, exploitation and the plundering of the wealth and resources of this Nation as well as other countries with little or no consequence to those responsible. Again the people are left holding the bag while they take of in the getaway car with the money like they did in the savings and loan debacle. Yet again we have another Republican McBush telling the people he has a plan to save the economy as did Nixon, Bush I, Bush II, and their hero Reagan. The Plan is Supply Side Economics - Give more money to his wife Cindy. And the media will help him propagate his economic policies without challenging them and stating that those policies are what got us into this mess, because they are part of that corporate structure that has been raping us of our wealth and freedom.
Marx was correct, the supersession of Capitalism by Socialism is inevitable. We can not endure these so called "free market" crises continually. The system is on the verge of a massive generalized implosion. Keynesian and fiscal stimulus is useless now. We are already half way there - privatization of gains and socialization of losses. The very WORST of both - the maximization of exploitation of the public. The capitalists are frantically clinging to a sheer cliff face by their bloodied fingernails and could care less about anyone else. The dialectic of this is that after the Soviet Union collapsed they moved closer to Capitalism. When we crash, and we will crash, we will move closer to Communism, as we did under FDR. We will end up meeting in the middle - Socialism. And after all, as Marx pointed out, Socialism is merely the prolonged historical epoch preceding Communism.
I prefer the Swedish "middle way" of regulated free market capitalism and extensive safety net paid by progressive taxation. Also a lot like FDR's plans, though he had to deal with the depression first.
I just watched the nightly news on MSNBC where they talked about the billions of dollars spent on finding out that there "might have been water on Mars" one day, followed by a piece where a man and his family was being evicted from their home because they couldn't pay the mortgage when the father got ill, followed by a piece on how the bees are becoming extinct which means our food supply is in jeopardy, now this ridiculous bail out by the government for it's own benefit.....once again! I don't know about you guys, but I am sick to death with the state of this country lately. Why are there not more outraged Americans??????????????
All us poor folk out here are just waiting for Milton Friedman's Chicago School free market economics to kick in and trickle on us a little so maybe some day we can move to Dubai and live with all the other high rollers.
Frankly, I'm always jazzed by stuff like the Mars missions. Basic science, the pursuit of knowledge, is something very valuable in and of itself. But don't pit science against the awful fucked-upedness of the "mortgage" crisis (really a crisis of our investment economy, where it's not about the market operating to provide goods and services but only profits -- or "returns" -- to the wealthiest 1%). The Mars missions (and the moon missions before them) would hardly make a dent in the economic devestation this country faces. We can do the science and stop the foreclosures IF WE END THE GODDAM WAR!!! THAT'S the real drain on resources -- poured down a rathole to benefit the investor class (now making a killing in speculating on energy and food; they're not convinced that they've done enough to kill the middle class yet).
Give the homeowners having trouble with their mortgages the nice low interest rate loans they are giving Fanny. Roll Back Arm Rates.
Increase business taxes to pay for it.
Beautiful blog! This is exactly what is wrong in this country, corporate greed has become not just the American version of royalty but some sort of God we're not supposed to question. I hope we get mad enough in time to throw out every complicit corrupt political bum. No matter how loud they squawk that dissent is blasphemy, I mean unpatriotic
Socialism, unlike right-wing rhetoric, does not mean the govt providing a safety net for its citizens. Socialism is when the govt owns means of production.
For the govt to essentially buy up these two lenders is essentially socialism. Ironically, Social Security privatization would be the biggest socialist program in US history, as the Federal govt begins buying up the stock market in our names.
Too big to fail means that institutions can gamble with taxpayer money. If they take higher risks ans win, they pocket bigger profits. If they fail, then the taxpayer will bail them out. Economists call that "moral hazard"; the rest of us call it immoral.
Actually, I'd disagree with your statement that "Socialism is when the govt owns means of production."
Socialism is ownership of the means of production by the workers.
That stuff they had in Russia after 1921 or so was state capitalism, in which the state owned the means of production, reaped the profits, and decided what to do with them. Over time, they increasingly left the workers out of the equation.
Free Lunch?
Who said there is no "Free lunch"? He may just be right. And if there is no 'Free lunch' then why do we keep getting hammered by the "Free Market" thing? This entitlement thing answers the question of 'who pays?' We know the big shots are at the receiving end, and at giving end are the rest of us.
So much for 'Free'.
And that goes for 'Freedom' itself, which as we see in Iraq is being delivered to those on the receiving end of the bomb run, or the delivered end of bullets from an occupiers gun.
I suggest we substitute for Free---the word COST. Then we can more correctly detect who pays and who pockets.
Anyone have a good idea speak up now!
It is the WAR stupids!!
We are pouring trillions of dollars into an ideologically based war - not a war that makes money, or one that we will get compensated for like the first Gulf war, not a war that we can show any substantial resource from. So what happens to the value of your money supply, when you extract trillions of dollars from it??
The value of the currency goes down. When that happens, ALL the rest follows!! It is so imbecilically simple, yet all the pundits want to do is misdirect the most obvious problem and blame this economic crises or that subprime mortgage collapse. Any company that takes investment risks should reap the rewards as well as suffer the losses, it should not be a taxpayer issue.
The government is spending so fast in Iraq, and now spending huge chunks of cash bailing out domestic private companies, it will become apparant to even the most dense and credulous citizens, our savings will be debased to cents on the dollar. Compounded with the original federal debt we continually pay interest on, makes for a perfect storm of our government leaders' making. Our economic existence will be going down. If you have cash savings and want to keep any of it, you must put it into something real, a commodity, a precious metal, anything but greenbacks..
It will soon behoove Americans to just quit the debt that is being vicariously put upon them, by emigrating to some other friendly
life imitates art:
Howard Beale: I don't have to tell you things are bad. ... It's a depression. Everybody's out of work or ... losing their job. The dollar buys a nickel's work, banks are going bust, shopkeepers keep a gun under the counter. .... I want you to get mad! All I know is that first you've got to get mad.
[shouting] You've got to say, 'I'm a HUMAN BEING, Goddamnit! My life has VALUE!' So I want you to get up now. I want all of you to get up out of your chairs. I want you to get up right now and go to the window. Open it, and stick your head out, and yell,
[shouting]
'I'M AS MAD AS HELL, AND I'M NOT GOING TO TAKE THIS ANYMORE!' I want you to get up right now, sit up, go to your windows, open them and stick your head out and yell - 'I'm as mad as hell and I'm not going to take this anymore!' Things have got to change. But first, you've gotta get mad!... You've got to say, 'I'm as mad as hell, and I'm not going to take this anymore!' Then we'll figure out what to do about the depression and the inflation and the oil crisis. But first get up out of your chairs, open the window, stick your head out, and yell, and say it:
[screaming at the top of his lungs] "I'M AS MAD AS HELL, AND I'M NOT GOING
Maybe we can get all that stolen money back by charging $1,000/hour for security for all these corporate thieves when they retire to their nice houses. They're gonna need bodyguards and a$$ wipers sooner or later. Let's not let those golden opportunities pass us by when the time comes.
Thieves and murderers are hiding behind the curtain of the nation states. The nation state is a protection scam. It is just a glorified version of the criminal underworld. They glorify globalisation but only for the fat cats. They also know their end is near. The old guard will not survive the internet revolution. Down with the corrupt nation state, long live the global democracy.
Crammer says that the mortgage is problem is not so big and will cost very little to fix. This problem will be in the trillions and that is a FACT. The very rich also speculated and bought many properties to flip them and the bank gave them great deals. Now they are walking away from them fast and this problem will make the middleclass and poor who were often fooled by greedy banks and sub prime loans look small. I know of two people who are from New York and bought condos in Las Vegas. The MGM GRAND are the developers of this massive project next to the Bellagio . These condos started at $800,000. One person bought 6 condos and another 20 condos to flip. They both walked away from them and let the banks have them. The developement in vegas is 46% in forclosure which equals well over a billion dollars. This is only one small example where the very rich were into speculating and flipping properties. In Flordia, Arizonia, Las Vegas, ans nearly every other state in the U.S. the very rich Speculated Big Time and the true loss to the banks will be in the TRILLIONS.
THE TAXPAYERS WILL PAY BIG TIME FOR THE RICH SPECULATING AND RUNNING . They also were allowed to buy with 10% down or less ..
SAME OLD THING.....
The rich get richer...the poor get poorer...
There is nothing we can do about the problems going on with our little world called America.
Can you imagine what would happen if the Gov't didn't do the bail outs...People might actually do something...Other than boo hoo about the people that get hurt thru this.
Voting the incumbents out won't help either. Hasn't yet.
We aren't getting much sympathy from all the countries we have helped in the past either.
They still do whatever is best for their country....subsidies - and unfair monetary practices.
They still have their hands out for any money we give them. Then some of them burn our flags.
Wow. This is pretty defeatist. Who says voting out incumbents won't help? Have we ever done so? We need a mass cleansing of our government. Get rid of all except: Kucinich, Waxman, Wexler and Feingold...
Then we should ALL vote to enact the National Initiative. www.ni4d.us. Please read up on it and VOTE. It could help us take control of our country back.
Won't happen.....
Do you realize how many people out there who
DON'T GIVE A DAMN AS LONG AS IT DOESN'T AFFECT THEM...
You must be logged in to comment. Log in or connect with
