Department of Treasury Seal
Now that John McCain has been forced to disavow his long-time mentor, Phil Gramm, for saying Americans are just economic whiners suffering from a made up "mental recession," the defenders of privilege have been trying to rescue McCain by reassuring us that Gramm was right, if a bit impolitic. However, neither Secretary Paulson nor Fed Chairman Bernanke got the memos.
Despite reassurances from Fox News, George Will, who called Americans the "cry babies of the Western world," and a "consumer psychologist" ABC found to claim that the economy has been great, there really does seem to be a crisis in the housing/lending industry (not to mention the auto industry, banking, manufacturing, energy, health care, student loans, jobs, stagnant wages, etc) that threatens a prolonged US recession and possible global financial crisis.
That would explain why Paulson and Bernanke, not exactly your typical populist whiners and alarmists, spent the weekend concocting emergency schemes to ensure that Fannie Mae and Freddie Mac, the nation’s largest mortgage lenders, would be able to raise capital to keep the housing industry from completely collapsing.
Via Bloomberg:
Treasury Secretary Henry Paulson put the weight of the federal government behind Fannie Mae and Freddie Mac, the beleaguered companies that buy or finance almost half of the $12 trillion of U.S. mortgages.
Paulson, speaking on the steps of the Treasury facing the White House, asked Congress for authority to buy unlimited stakes in and lend to the companies, aiming to stem a collapse in confidence. The Federal Reserve separately authorized the firms to borrow directly from the central bank.
The announcements followed weekend talks between the firms, government officials, lawmakers and regulators, after Fannie Mae and Freddie Mac lost about half their value last week. Paulson and Fed Chairman Ben S. Bernanke are trying to prevent a collapse that would exacerbate the worst housing recession in 25 years and deepen the economic slowdown.
All of this comes after years of official denials that the government would back up, and if necessary, bail out Fannie and Freddie. Hence, these companies, though government sponsored, were "private" and need not have their lending practices nor executive compensation closely overseen and regulated. The market always saw through the non-bailout nonsense; the only folks who were forced to accept it were American taxpayers, who will be left holding a very devalued bag.
"Buying unlimited stakes" is an interesting euphemism: it means the US Treasury plans to purchase the companies’ stocks, whenever it wants, as much as it wants. Just announcing that it plans to do so seems intended to keep stock prices up for the moment, with shareholders knowing that a huge buyer that can print money is out there willing to buy shares [if the companies need further capital]. So to put off facing an even worse bailout, Paulson is proposing to shield shareholders from a further fall — 75 percent his year — in stock prices. As Krugman reminds us: Privatize the profits, socialize the losses, and moral hazard be damned, because as we all know "they’re too big to fail."
I don’t know how George Will, ABC, and the Fox/McCain/Gramm Network are going to explain this. When an Administration that claimed to despise government interference in markets wants authority for the US Treasury to bail out trillion dollar "private" companies to keep the financial community from collapsing, that’s not a sign that the economy is doing just fine. But being consistent is not their goal. This is all about deflecting blame in November, which is why they’re whining so loudly that there’s no problem.
Helpful background from PBS’s News Hour. More from the New York Times here and here, and from Ian Welsh . And see Hale Stewart on various measures of economic health.
Related posts:
- Krugman on Republican Health Care Logic: The Great Ignorance Meets the Great Disingenuousness
- Health Care Reform: Only the Baucus Bill is Deficit Neutral? Wrong
- Rationing Health Care? Let’s Talk Health Insurance in America Right Now
- Superfusion: How China and America Became One Economy
- Slavery and the Health Care Crisis
Spotlight
Support this site!
Subscribe to the newsletter
Advertise on Firedoglake
Send
us your tips
Make us your homepage
About Firedoglake
Advanced search
Privatize profits
Socialize losses
Privatize profits
Socialize losses
Privatize profits
Socialize losses . . .
George Will will continue to whistle while passing the graveyard. Everything is rosy, especially in his luxury suite at the ballpark.
The rats, rather than leave the sinking ship, are bailing as fast as they can. What happens when it becomes apparent the ship has no bottom and bailing cannot succeed?
It’s The American Way!
Good Morning Scarecrow.
Today is Woody Guthrie’s birthday. His music is highly relevant in these times. Deja vu.
Thanks, Scarecrow. I haven’t even finished my coffee and I’m already depressed…
Seriously, though, these bailouts of the mega-disaster companies are getting to be far too frequent. They would stop pretty quickly if one of the ground rules for such a bailout would be that top management and board members of firms being bailed out would need to forfeit all (and I mean every last penny!) of their assets as a contribution to the bailout funds. You’d see management practices improve pretty darn fast when the robber barons are actually looking at downside risk.
Styx – Grand Illusion Live 1996
http://www.youtube.com/watch?v=lpqbn6xWH_g
BagNews Notes has analyzed the New Yorker cover
http://www.bagnewsnotes.com/
“We have all been here before” Haven’t we?
Not only will these bozoz not lose one penny they’ll be kept in place to run the disasters they created.
Don’t bail(out), digg!
In one sense, George Will is right, at least about one portion of our population. Despite having one of the lowest tax rates in the developed world, Will’s rich cronies are constantly whining and demanding further tax breaks. Perhaps if George would spend less time at the country club, and more with working people, he would understand what 30 years of stagnant wages have done to the is country.
don’t want to run up the unemployment rolls right before the election
I guess the country can’t make a good pitchfork. You’d think there would be demands (a la Ian) for clawing back executive bonuses, mass firings of boards and senior management and other retribution. We all seem to be watching to horror as though we’re at the movies, instead of the real victims.
Everything is OK, if you only measure the NYSE, or cherry pick your stats a little. How does the NYSE affect most of us?
If one has a 401(k) or other pension plan, a great deal. Worthless securities make for worthless pension plans. For the working stiff US Savings Bonds are still a good investment, although the maturity times have been lengthened.
Off to swim in the great capitalist cesspool.
Be good to yourselves, and all other living things.
Namaste
OT breaking news: The ICC has filed genocide charges against the President of Sudan. What’s depressing is that the stats for Sudan are 300,000 dead and 2.5 million displaced. George Bush’s war of aggression in Iraq has led to closer to a million deaths and over 4 million displaced. He needs to be the next one indicted by the ICC. Instead, we have apologists calling for pardons for any administration hacks who were involved in torture. Click my name for a post I did last night on one of those hacks.
It takes sustained effort to wreck an economy as large as that of the United States. The corporatists and their Bush admin lackies, however, have been beavering away at it now for a quarter century, and may just have succeeded. This fall the United States consumers are going to pull back, and there will be carnage in the shopping malls that have become the true symbol of American culture, to ourselves as to the rest of the world.
A small piece of consolation. We are extremely lucky to have a trained and sensible economist at the helm of the Fed rather than the hack that preceded him. Another point: unlike the rest of the Federal government, including Treasury, whose executive and staff positions were staffed with GOP flunkies from the University of Podunk, the Fed has maintained its quality. Whether it can manage the looming disaster is another question, but there’s no question that had Greenspan been in charge, things would be even worse than they are becoming.
swag at #1 got it right, right off the bat. Not much is being done for the people who are or were actually in those houses but those who hold the paper on them, well that’s a different story. Freddie Mac and Fannie Mae are just another chapter in the story. They are not being “rescued” to help out homeowners but investors.
Paulson and Bernanke aren’t pushing regulation so this can’t happen again. They are once again promoting the injection of the public’s money into keeping the party going. Their response to the Titanic hitting the iceberg would have been to throw the passengers in steerage overboard to lighten the load, use the ice from the iceberg for drinks for those in first class, and ignore the gaping hole in the side of the ship altogether.
so true
I didn’t know what Stuart Taylor has been up to. He used to be on the NewsHour but they dropped him as an analyst after he editorialized on Clinton’s legal troubles and IIRC fitness to be President. Today the NewsHour would probably push him as a model of objectivity. He represents the Broder-ization of the media: he treats a pecadillo by Clinton as high treason and high treason by Bush as a pecadillo.
Paulson does want legislation, to allow him to buy the companies’ shares. If he doesn’t get it, the stock prices might continue to tank. One of the links says he’d attach this authorization to the housing bill working its way through Congress, part of which does address real homeowners/mortgages. Convenient, no?
Billionaires are still complaining about high taxes…er whining about paying any taxes, I get that confused. This coming ‘depression’ is cooked heated over and ready to be served for the next prez. Crumbs anyone?
This would already be a depression if not for the reforms put in place by FDR. No amount of Republic/Limbaugh spin can change that fact.
The rivets that held the exterior hull’s metal plates together failed to hold the hull plates together. The rivets where substandard, for reasons of cost?? The slag content in the steel rivets where to high and failed upon impact with the iceberg. Our constitution acts as a rivet. The introduction of slag once realized is to late and compromises US ship which goes down like the Titanic, NYSE, and pensions.
Hopefully we can stop including supply-side economics as a credible approach now. It would also be great to end chanting the “tax cuts fix everything” mantra as well. Both have proven to be great Republic failures.
Vote for this post at Reddit!
Yesterday on ABC’s This Week (or whatever it’s called–I’m a highly infrequent viewer) the insufferably anal-retentive George Will claimed Phil “Deputy Dawg” Gramm was right; Americans are whiners.
Petitioning the Government for redress of grievances? Whiner!
George Will is an ass.
Turns out there is no right side of the bed to get out of (out of which to get) any more.
And Scarecrow, did you say pitchfork? Today’s Bastille Day, I think. Quatorze Juillet. Citizens, take to the streets! Oh, wait, that’s Norske’s gig.
Reply to: swag July 14th, 2008 at 5:05 am 1
COMMENT: Hey! That’s Crapitalism. Don’t you know…
Legislation to keep the system going as it is, not fix it. It would be typical for the Republicans to attach a real stinker to the housing bill. I have to say that bill is no prize either. It is supposed to help about 400,000 homeowners when there are millions who need assistance.
http://www.nationaljournal.com…..0_5299.php
This article says 400,000 out of 2.2 million but I think the number is subsantially higher, at least twice this. I have even seen figures of 8.8 million.
So, Scarcrow, has FDL been coming at this the wrong way? Instead of asking us poor Firepups to make donations to feed the servers (click on the “support this site” button on the right!), maybe FDL should be accumulating a debt of hundreds of billions of dollars so that it can get a government bailout, too.
I’m all for storming the Capitol
Here is the ass’s ass. The smirk-meister at his dismissive, contemptible best.
Dates back to 2004. If you’ve already seen this, you know what true disgust is all about. If you dare to watch it, put up your puke shields, pups. And afterwards, reflect back to Scarecrow’s post. Pretty much ends the wonderment about how we got into this freaking mess, politically, economically, psychologically, militarily, environmentally, socially, judicially, racially, locally, globally.
I’ll meet you at the Vietnam Memorial.
Good Morning Scarecrow and Firedogs,
and apparently we should keep them Off The Books
Un jour merveilleux pour donner l’assaut à le palais est lui pas?
Short English version, better than fractured French: Me too.
So true, SD, many of Woody’s songs have an amazing prescience to our current situation. A master lyricist. Rather than posting a vid/lyrics of This Land is Your Land today (Woody’s signature piece), given Scarecrow’s topic, how about this one? Great tune, & the last verse is a kicker. Vid link is Ramblin’ Jack Elliott singing, pix by Dorotea Lange:
Talking Dust Bowl Blues
Back in Nineteen Twenty-Seven,
I had a little farm and I called that heaven.
Well, the prices up and the rain come down,
And I hauled my crops all into town –
I got the money, bought clothes and groceries,
Fed the kids, and raised a family.
Rain quit and the wind got high,
And the black ol’ dust storm filled the sky.
And I swapped my farm for a Ford machine,
And I poured it full of this gas-i-line –
And I started, rockin’ an’ a-rollin’,
Over the mountains, out towards the old Peach Bowl.
Way up yonder on a mountain road,
I had a hot motor and a heavy load,
I’s a-goin’ pretty fast, there wasn’t even stoppin’,
A-bouncin’ up and down, like popcorn poppin’ –
Had a breakdown, sort of a nervous bustdown of some kind,
There was a feller there, a mechanic feller,
Said it was en-gine trouble.
Way up yonder on a mountain curve,
It’s way up yonder in the piney wood,
An’ I give that rollin’ Ford a shove,
An’ I’s a-gonna coast as far as I could –
Commence coastin’, pickin’ up speed,
Was a hairpin turn, I didn’t make it.
Man alive, I’m a-tellin’ you,
The fiddles and the guitars really flew.
That Ford took off like a flying squirrel
An’ it flew halfway around the world –
Scattered wives and childrens
All over the side of that mountain.
We got out to the West Coast broke,
So dad-gum hungry I thought I’d croak,
An’ I bummed up a spud or two,
An’ my wife fixed up a tater stew –
We poured the kids full of it,
Mighty thin stew, though,
You could read a magazine right through it.
Always have figured
That if it’d been just a little bit thinner,
Some of these here politicians
Coulda seen through it.
Recall the cowardice of the “congresscritters” as the Bonus Vets and family memebers where killed by fellow marines under the command of who??? Storming the Capital these day, the people’s house will be construed as a threat to “national security” even if it is the governed doing the storming!!!!
Okay, I’m in. I updated my digg profile to include my photo holding my trusty pitchfork.
I don’t think FDL is “too big to fail.” That only applies to Kos.
C’est vrai!
Un jour merveilleux pour donner l’assaut au palais, n’est-ce pas?
Booyah! (That’s French for, ummm, booyah.) Ya know, our virtual pitchforks on the net are awesome. But there comes a time . . . is this the time, I wonder?
wow! wish there were some oversight around here somewhere
C’est beaucoup mieux.
Anyone besides me detecting the ghost of deGaulle?
There is a deceptively titled piece at the NYT:
Lieberman Finds Middle a Tricky Path
http://www.nytimes.com/2008/07…..ref=slogin
Being a McCain supporter puts him in the middle? WTF?
Oversight? Not to worry; your govt is overlooking everything.
fyi – apparently the FDIC keeps a private list of “troubled banks” , there were 76 on the list in April – IndyMac wasn’t one of ‘em
new thread
announcement by Christy
OT
Richard lester of MIT is speaking now on innovation in alternative energy — in front of the Natioanl Governors association on CSPAN, it just started.
Christy has a new post and an announcement upstairs.
Since we are socializing industry now and the GOP is willing to intefere in Markets, can we next go after the Oil industry next? I think the American Consumer can use a bail-out package.
Can’t get there. Another technologically tough day at the lake . . .
Don’t ever forget – the Democrats were in on the creation of this winning strategy for the ‘haves’, while everyone else gets a lousy stimulus check -that ends back up in the pockets of the ‘haves’.
My stimulus check went for, (1) a cheap suit to appear in court with and,(2)a cheap watch to tell me how much fu**ing time I have left before I lose everything!
We have not begun to utilize the power of the net. We haven’t got past the, you’ll pardon the expression, whining stage. We have a choice. We can leave solutions to the likes of Bernake and Paulson, or we do it ouselves. We can’t see past the present structure, so it’s pitchforks at the Capital or nothing. It may come to pitchforks, but there’s lots of less traumatic options to try first.
No one whines louder than a CEO who has his perks taken away.
Have fun storming the Capitol!
9/11 for the economy:
http://www.newsdissector.com/blog/
Excuse me, I have to go get some gruel.
The low response rate here is rather telling.
It was very well-anticipated last February this bail-out of the banks. It just happened a few months sooner than expected. The process has been ongoing, with the two major players in the secondary mortgage market buying up worthless credit notes, knowing full-well the taxpayer, one way or another, would cover the bad debt accumulated, thereby.
The ‘low response rate’ may be related to Ian Welsh posting last night on the subject in a different manner than Scarecrow. But responses also always fall off when it is mentioned that there is a new posting ‘upstairs’. Television, Drug of the Nation, habituation.
If Paulson & Bernanke were non-political I’d say we could get through this without serious problems, perhaps even a gain. But, I don’t know where they stand politically.
F&F have paper and a line of credit.
Mort. holders have paper.
Somebody who has been speculating in oil futures has money.
How’s it play out with F&F?
If bondholders (some are the Cayman Islands) sell sell sell, then the price of bonds goes down down down.
If B&B were smart they’d let the price drop some and then buy buy buy to make a (sell high, buy low) profit for the government.
If they were doubly smart they could play it double-sided: let the stock of F&F drop some and buy it back cheap (as stated above) and also play the sale & rebuy of mortgages the same way.
The government would likely be criticized for ‘taking advantage’ of their knowledge of how things were going to go, but it’s pretty obvious and doesn’t require their insider knowledge. After all, I’ve just stated it here and I certainly don’t have insider knowledge.
Who might get hurt?
If F&F stock stays stable enough, then they do too.
If mortgage prices stay stable enough over the long-run, then that’s fine.
People who sell F&F stock are going to be happy to sell it since the admin. has been telling them it’s junk.
Seems like a win win win situation if handled right.