Volatility

February 2, 2010

Get Rid of Fannie and Freddie

 

Obama’s new budget includes this juicy quote:
 

The administration continues to monitor the situation of the G.S.E.’s closely and will continue to provide updates on considerations for longer-term reform of Fannie Mae and Freddie Mac as appropriate.

 
That signifies the Bailout’s main theater. As the NYT article says, the TARP model of the Bailout is being winded down. The new frontier is the potentially infinite government buys of MBS, laundered through the GSEs, Fannie Mae and Freddie Mac.
 
This is sweet because it’s off-budget. Obama can declaim about the budgetary horrors of support for CSP deployment and how the National Park Service is a clear and present danger, while happily embezzling trillions under the counter. Bailouts laundered through Fannie and Freddie let Obama commit capital accounting fraud. 
 
I’ve said a lot about the evils of the Bailout, but I don’t think I explicitly said get rid of the GSEs completely, so let’s say that clearly today.
 
If we’re going to have mass capitalism, then the government shouldn’t be turning the housing market into a command economy in the first place. Or, if they really want to encourage home “ownership”, the government should lend directly. But we should eradicate all the parasitic middlemen who have glommed onto the GSE gravy train.
 
Supposedly the “private sector” does things more “efficiently”. That was the rationale for this kind of Rube Goldberg structure, although having government backstop it all through the mortgage deduction, the FHA, and the GSEs, was already a contradiction to begin with.
 
This was always ideologically dubious. But even if it were ever plausible that the private sector would be more efficient in using government money, we now know that was false, and therefore to still argue this is a LIE.
 
We now know that every private sector participant just imposes a bloodsucking tax, sets up a parasitic toll booth. In this hypercomplex, hyperinefficient contraption, every layer of middlemen just extracts more useless rent, just lays another chain across the river.
 
If we as a society want this sector to be a planned economy, then do it directly. Otherwise let the vaunted “free market” do its voodoo.
 
But what we have is what the free market ideologues really wanted all along – a corporatist command economy which socializes all risk and responsibility while letting private gangsters lay their chains across the stream to extract all the “profit”. This kind of command economy is dedicated to conveying taxpayer money to worthless parasites. That’s the one and only purpose of this intentionally complexified, inefficient process.
 
The purpose of the GSEs is to embezzle taxpayer money and launder it toward the pockets of private racketeers.
 
The banks pretend to want to get rid of Fannie and Freddie, saying they’d like to stop the government competing with them, but this is really just a highfalutin version of “Keep your government hands off my Medicare!”
 
The banks really love the GSEs because that’s the only conduit for the government to keep the Bailout going, to keep asset prices propped up, so the banks can still pretend all that toxic garbage rotting on their balance sheets isn’t worthless, so they can pretend they’re not insolvent.
 
We should look at the Bailout as an ongoing version of a fascist “seizure of power”. That’s the term the Nazi party used for the 1933 process, and the parallel is compelling. It’s a simultaneous process of undermining, subversion, systematic theft and expropriation, while trying to make it all look normal, and at any rate to represent it as necessary.
 
If we comprehend the Permanent War, the so-called Global War on Terror, as being analogous to the Nazi violence of 1933, the parallel becomes even more complete.
 
This seizure of power is subversive, thoroughgoing, and totalitarian in intent.
 
The Bailout War and the Permanent War are two sides of the same coin. America is the treasure being plundered. We see the pirates clearly. So will we resist them? And how will we resist them?
 
Finding an answer to the second question depends upon answering Yes to the first. (Those who insist on having an answer to the second before saying Yes are simply cowards or sellouts who would never say Yes under any circumstances.)
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9 Comments

  1. This is OT, but I think you will appreciate the send up of Glenn Beck by Jon Stewart.

    http://www.breitbart.tv/jon-stewart-mocks-glenn-becks-appendectomy/

    Comment by Edwardo — February 3, 2010 @ 12:24 am

    • Thanks, that was good.

      Mr. “I was for the Bailout before I was against it” Beck sure is a tool.

      Comment by Russ — February 3, 2010 @ 7:25 am

  2. I agree completely.

    On Bailouts –

    I know I’m late to the dance on this one, but can’t believe stupid Bernanke wasn’t asked to respond to these Galbraith comments during his confirmation hearings.

    “In this op-ed, Professor Galbraith said the bailout plan of September 2008 wasn’t necessary, and any rescue could have been handled by expanding existing programs: “Now that all five big investment banks – Bear Stearns, Merrill Lynch, Lehman Brothers, Goldman Sachs and Morgan Stanley – have disappeared or morphed into regular banks, a question arises.

    The point of the bailout is to buy assets that are illiquid but not worthless. But regular banks hold assets like that all the time. They’re called “loans.”

    With banks, runs occur only when depositors panic, because they fear the loan book is bad. Deposit insurance takes care of that. So why not eliminate the pointless $100,000 cap on federal deposit insurance and go take inventory? If a bank is solvent, money market funds would flow in, eliminating the need to insure those separately. If it isn’t, the FDIC has the bridge bank facility to take care of that.

    Next, put half a trillion dollars into the Federal Deposit Insurance Corp. fund – a cosmetic gesture – and as much money into that agency and the FBI as is needed for examiners, auditors and investigators. Keep $200 billion or more in reserve, so the Treasury can recapitalize banks by buying preferred shares if necessary – as Warren Buffett did this week with Goldman Sachs. Review the situation in three months, when Congress comes back. Hedge funds should be left on their own. You can’t save everyone, and those investors aren’t poor.

    With this solution, the systemic financial threat should go away. Does that mean the economy would quickly recover? No. Sadly, it does not. Two vast economic problems will confront the next president immediately. First, the underlying housing crisis….The second great crisis is in state and local government.”

    Comment by chas — February 3, 2010 @ 1:18 am

    • Of course Bennie would never validate anything which contradicted his drive to make the Fed the one and only regulator, on paper.

      (At which point the Fed could go completely derelict, and all rump regulation which still existed in theory could be abrogated completely in practice).

      Comment by Russ — February 3, 2010 @ 7:29 am

  3. I believe the thing we need now more than anything else is a succinct explanation (your forte) of how the bailout money flowed from the printing presses, through the stock market & into the pockets of the panjandra. Not easy I’m sure or it would already have been done.

    Comment by chas — February 3, 2010 @ 12:19 pm

  4. Yeah, I know there are lots of questions about exactly how they’re doing it. I’ve seen allegations, I think at Zero Hedge, that they’re surreptiously pumping up the equities market.

    Of course Fed (and we just recently learned, Treasury as well) MBS purchases are what’s propping up the phony balance sheets of the insolvent banks, the main trick enabling them to fraudulently claim “earnings” and “profits” to justify their “bonuses”.

    All of this is felonious, the accounting fraud and the outright theft via bonus it justifies.

    Offhand I forget how much the Fed’s balance sheet has been expanded since the Bailout began. Somewhere above $1 trillion, I think.

    Their MBS purchase goal was supposed to be $1.25 trillion by this spring, but they just authorized themselves to go indefinitely beyond that. Same for Treasury.

    Then there’s the literally incomprehensible (because it’s being kept secret) amount of loans, loan guarantees, other guarantees…..

    Well, that’s just a rambling overview. I’m still trying to take it all in.

    Comment by Russ — February 3, 2010 @ 4:22 pm

    • Thanks chas, that’s a good clue.

      Comment by Russ — February 4, 2010 @ 4:29 am

  5. I just came across this. In the context of describing imminent economic catastrophe, JM Greer writes this:

    http://www.energybulletin.net/51428

    “A different reality pertains within the Washington DC beltway. Where states that fail to balance their budgets get their bond ratings cut and, in some cases, are having trouble finding buyers for their debt at less than usurious interest rates, the federal government seems to be able to defy the normal behavior of bond markets with impunity. Despite soaring deficits, not to mention a growing disinclination on the part of foreign governments to keep on financing the same, every new issuance of US treasury bills somehow finds buyers in such abundance that interest rates stay remarkably low. A few weeks ago, Tom Whipple of ASPO became the latest in a tolerably large number of perceptive observers who have pointed out that this makes sense only if the US government is surreptitiously buying its own debt.

    The process works something like this. The Federal Reserve, which is not actually a government agency but a consortium of large banks working under a Federal charter, has the statutory right to mint money in the US. These days, that can be done by a few keystrokes on a computer, and another few keystrokes can transfer that money to any bank in the nation. Some of those banks use the money to buy up US treasury bills, probably by way of subsidiaries chartered in the Cayman Islands and the like, and these same subsidiaries then stash the T-bills and keep them off the books. The money thus laundered finally arrives at the US treasury, where it gets spent.

    It may be a bit more complex than that. Those huge sums of money voted by Congress to bail out the financial system may well have been diverted into this process – that would certainly explain why the Department of the Treasury and the Federal Reserve Bank of New York have stonewalled every attempt to trace exactly where all that money went. Friendly foreign governments may also have a hand in the process. One way or another, though, those of my readers who remember the financial engineering that got Enron its fifteen minutes of fame may find all this uncomfortably familiar – and it is. The world’s largest economy has become, in effect, the United States of Enron.”

    Comment by Russ — February 4, 2010 @ 9:53 am


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