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
Both sides of the aisle taek their cues (and money) from Wall St.
Every politician will bend over backwards to protect big money.
Do any of you think there won't be more socialism for the rich???
Here are Barrack's contributors:
Goldman Sachs $601,480
JPMorgan Chase & Co $373,507
Citigroup Inc $371,054
UBS AG $370,850
Lehman Brothers $330,760
Harvard University $325,424
Google Inc $321,964
Sidley Austin LLP $305,345
Skadden, Arps et al $281,163
Morgan Stanley $274,213
Jones Day $251,250
Exelon Corp $237,311
Latham & Watkins $228,026
Microsoft Corp $223,895
Wilmerhale Llp $222,080
General Electric $210,329
-----------
John McCain's contributors:
Merrill Lynch $249,960
Citigroup Inc $249,251
Goldman Sachs $171,945
Morgan Stanley $167,371
Greenberg Traurig LLP $157,087
JPMorgan Chase & Co $150,200
Credit Suisse $123,225
UBS AG $110,915
Lehman Brothers $99,550
Blackstone Group $97,200
Bank of America $96,525
Wachovia Corp $96,062
Bear Stearns $94,200
Bank of New York Mellon $89,500
Gibson, Dunn & Crutcher $81,000
Pricewater
Deutsche Bank AG $79,561
And finally Chris Dodd's contributors:
SAC Capital Partners $284,300
Citigroup Inc $153,294
Bear Stearns $122,650
Royal Bank of Scotland $119,050
Goldman Sachs $105,400
American International $99,300
St Paul Travelers Companies $98,300
The Hartford $94,350
Merrill Lynch $74,900
Ernst & Young $70,750
JPMorgan Chase & Co $69,050
Morgan Stanley $67,800
Bank of America $63,000
General Electric $62,650
Apollo Advisors $61,900
Pricewater
Lehman Brothers $59,200
KPMG LLP $56,350
Credit Suisse $55,300
http://www
The FOX is in the Henhouse.
And these numbers are chump change. The real decisions are being made by lobbying money, not democrats or republicans.
Just look at the adjacent headline: "$200 Mil Spent to Buy Influence.
Your post is misleading in the sense that it gives the impression that these companies donated to the campaigns. In fact, they did not. Individuals who work for these companies did. Rather than listing by company, why not list by occupation?
We need those that made massive salaries and profits from the recent boom for the rich to start paying back for the pain we now all face. That may involve much heavier taxes, especially on gross incomes over $1 Million, it may mean higher Capital Gains Tax rates and so on. I don't want to subsidise the rich and indeed if they gained in the past, they should have to pay now for the losses they caused.
We also need to regulate the excessive incentives and money to business executives that encourage far too many of these 'busts' in the long run.
In a recession, many 'rich' people will lose everything. If they had been more reasoned in their decisions they could have prevented it.
It's funny he uses the term socialism, it could be corporate welfare. I used Communism=
You want to know who the Big Dog at the top of the pack of these mortgage Peacocks strutting around bragging about how big his company (was)? Angelo Mozilo of Countrywide.
CW use to pilfer mortgage offices by offering insane bonuses to branch managers to walk out. I'll never forget the day by ex-boss ran into my office saying I'd have to make up 60 million in production thru wholesale, b/c our branch near Chi-town was pilfered by CW.
From a recent article- http://www
"... a federal judge ruled that a shareholder lawsuit against Mozilo and other Countrywide executives and directors should go to trial. The plaintiffs claim the top officials failed to provide enough oversight of the lender and misled shareholders about the company's true financial state.
According to congressional figures, Countrywide lost $1.2 billion in the third quarter of 2007 and another $422 million in the fourth quarter as the subprime mortgage crisis hit. The company's stock fell 80 percent between February and the end of the year.
During the same period, Mozilo received a $1.9 million salary. He also received $20 million in performance-based stock awards and sold $121 million in stock."
No, no, no.... you have to subsidise the rich, it's the American way.
It would have been better policy to just hand a million dollars to each and every American citizen.
My math isn't too good, but I think that would be something like 300,000,000,000,000 (should be 3 hundred trillion dollars). That is way beyond the estimated WORLD economy of 100 trillion dollars.
Or 75 trillion euros.
I'll settle for a hundred grand.... pay off half my morgage!
nah, they handed us each $600 instead...
Like they say privaize profit, socialize loss. Freddie Mac, Fannie Mae and all of Wall Street for that matter are the biggest welfare queens that this country will ever know. Fine. Let them have it their way. When economic armaggedon hits the US I'll videotape their sorry asses as they jump out of their corner office windows. Oh wait, they'll all be living in different countries by then. How come nobody ever stands up for the common man?
A Major league short stop with their fielding and batting averages is called retired/traded back to the minors.
A basball teams success depends on 18 players...
Bush has proved that the talent required to be the most powerful CEO in the world is not so much!
The CEO does not show up ready to play for a month... and the TEAM will not die/nor company fail (if its been run correctly!
The executives playing seond,., third and 4th string were also ranking in paychecks much larger than players in the minors by a factor of a 1000s..
The players average around an 8 year carreer. Are they paid perhaps way too much ... yes... But failed CEOs... Yes!!!!!..
Regards
The criminals are in charge....
Well, well, well. Finally somebody on Huff Po writes about the reality that is Repug ballyhooed capitalism. Businesses and board members keep all of the record profits, but they suffer little of the losses as you and me cough up for the bailout. Is there anyone among us who believes the nation and world would have degenerated any faster if the Feds let Chrysler fold up in the late 1970's-early 1980's? Did Chrysler end up flourishing? Check out their recent stock value and profitability. Who came out the hero in that buy out? Yes, that infamous laissez-faire capitalist Lee Iacocco, Federal panhandler extraordinaire. Maybe Chrysler can entice Lee out of retirement to negotiate another sweetheart deal from the Feds? Followed by one for GM and Ford too? Of course there can be no Federal regulation of the business that you and I owe, such as reasonably escalating CAFE requirements, that's not laissez-faire or real capitalism. Detroit needs to build some more high-profit 15 mpg Ram's, Silverado's, and F150's!
My somewhat selfish question..
I have seen this scenario before, but it boils down to one simple point. Businesses
GOP = Socialize costs. Privatize profits.
The poor have too much money, and the rich don't have enough.
Agreed. The poor are always begging for more. Wethinks Senator Obama needs to deliver another speech on personal responsibility.
http://hea
More proof that we live in what is effectively a Fascist state. We are now taxed WITHOUT representation.
How can these people be called "CONSERVATIVES", by any stretch of the imagination?
"The poor have too much money, and the rich don't have enough."
The liberal columnist Richard Reeves described that as the essence of RepubliCON eCONomic philosophy decades ago. True then, true in the 1880s, true now, true forever. The RepubliCONs are the party of the rich, period. And the irony is they call Democrats "elitist."
the 80's, under basically the same leadership, brought us the S & L debacle/bailout. and now this. now get back to work, little worker bees......
In the real hive, all worker bees are female, and Drone are male, serving their only purpose, to mate with the queen and then die or be driven out of the hive to die.
I think we should look at this....
What is most unseemly in this mess is that banking execs seem to think they should be paid what a major league shortstop is paid. Disgusting!
I think I see what makes them think that. They go deep in our hole with the backhand, and can still throw us out with their ARM's.
LMAO!!!
Savings and loan bailout in the 80's, Mortgage bailout in the 00's- both perpetrated by Bushian government. Charles Keating is probably saying "damn, why didn't I think of that!"
Socialism for Wall St is better known as Socialism for the Rich. It's a time honored American tradition.
The building of the USA's transcontinental rail roads was financed by a very large example of America's socialism for the rich including free land & other benefits. Corporat theives & malefactors of great wealth were among those who have benefited from America's Socialism for the Rich. White collar criminals have used Socialism for the Rich to become malefactors of great wealth. America, what a country?
The Republicans are always decrying clasws warfare - why do you want the rich to pay more taxes? Why should they be punished. The truth is our tax code is regressive, meaning the wealthy have always paid less total taxes, as a percentage of their income than the poor and middle class. Now we are being asked to also protect hedge fund managers, wall street bankers and brokers form thier failures. It is an obscenity.
Republicans do not want to help homeowners refinance their loans and keep their houses - instead they are guaranteeing loans against losses to the swindlers who profited from this sub-prime mess. So much for the Republican mantra of free markets.
I guess Bush is not content until this country is completely bankrupt and his rich trust fund baby friends have walked away with the treasury.
How very true. At a recent exhibition of work by Primary School Children (under 11) they wrote about famous Scotsman who'd done well in the States. One child had written about Carnegie "he made his money from railways and steal" !!
'Out of the mouths of babes and sucklings. !!
Meanwhile our politicians on both sides of the pond try to convince us re 'trickle down economics'. The precise reason why there are great accumulations of wealth, is that money ALWAYS 'trickles' (cascades ?) upwards. When cold air rises and lead floats we might see wealth trickling down. Until then - don't hold your breath !
Upon reflection I've decided not to call my accidental use of the hoary pun "Corporat.
Mother Jones to prisoner: "What are you in for?"
Prisoner: "I stole a car."
Mother Jones: "You should've stolen a railroad -- you'd be in the Senate."
It never changes. Well, for a brief period from 1933 to about 1970 it almost did.
These bailouts are the ultimate slap in the face to America's taxpayers.
You have no choice are input in this. But it's your money.
Must be nice to run a business with no risk. No responsibility. No accountability.
It sounds like Mr. Borosage has been listening to Randi Rhodes, who has been talking about this type of socialism for the rich for weeks now.
"Privatize the profits, socialize the losses", right? That is precisely what is happening.
Randi's always ahead of the main stream. She's a prophet.
Wow...week
Anyone read "Perfectly Legal" by David Cay Johnston (2003)? Meethinks the rich ARE different.
Recently there is a lot of finger pointing in the Republic. I just heard a right wing so called economist hear on NPR arguing that actually the skilled labor is getting a subsidy by not issuing any more H1B Visas. The trend is put so squarely on us now. We are the ones that caused the housing crises and the soaring gasoline prices and food prices and so on. There are the hidden remarks that deter from the real culprits, the so called "experts", the stewards of the mega industries. The first action is to fire the Execs. They obviously failed with their expertise. The leaders that were chosen for us and not by us would take any shape or form of an apology or some responsibility for what they did or did not do. So we will hear more of blaming us than them. There are to elements in a society that drive success: solidarity and responsibility. It is the social responsibility of any leader to steer the ship to the benefit of all in it. I am torn about whether to drop Mac and Mae or safe it. In the end it might be better to re architect both companies. I worked for Mac once and I have never seen an organization with so little cohesion and ineffective duplication of roles. With the bail out those companies should allow their employees to elect their leaders but that would be un American, because it would make those accountable.
it becomes a new rule that a corporation bail out
does not include its ceo salary.
all of the company's administration is held accountable -
enronlike. the "justice" department moves in and drags out the criminals
of the failure first. - then the feds to the rescue.
p.s. what if there were no wall street? what if there were no stock market?
how would that hurt the world? would it be better off if the rich weren't going to
las vegas everyday off the backs of the laborers?
.
Thats been tried.. its called communism.
What also does not work is laisez faire capitalism which is brought back every 30-40 years and fails again and again.
Capitalism needs to be regulated for the same reasons we place speed limits on streets and for the same reason communsim fails... no one really wants to be equal... if they did track meets , football games and etc would have no winners and be very boring... And some one given an inch will try to take a mile. Its human nature in bioth cases.
Regards
No Wall Street? As in (dare I hope?) abolished by legislative fiat? The world economy would sink immediately as all the wealthy would would suddenly liquidate their stock holdings. Corporations would suddenly find themselves without operating cash (that's supposed to be the idea behind offering stock in a company, instead it is now about speculating the price up to make a quick killing) and the government would want to bail them out. Maybe it would pave the way, not overnight, for nationalizing US industries.
But it's a "fool's" dream. (real socialism) Big business (finance, MIC, insurance.
Quit WHINING, peasant!
You must be logged in to comment. Log in or connect with
