Progressive Ponderings: Too Big to Fail
By Joe Mayer
Oops! The free-market myth-makers, ideologues, gurus, and practitioners have taken it in the shorts and are fighting back with non-free market strategies.
But first, we are experiencing a perfect example of the falsity of the conservative economic agenda and its idea of governing. Since Reagan they've promoted the "market solves all problems" myth that achieved its apex in the past seven years. The myth and its resulting policies have created the largest economic divide since the Great Depression. The myth faithful jumped right on the mortgage problem by rescuing one of the largest investment banks in the nation.
Now Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Association) are in the spotlight as Treasury Secretary Henry Paulson argues before Congress that the two mortgage giants are "too big to fail." Fannie and Freddie are unique hybrids, the creation of a corporatized government. Stockholders own and control them and receive the economic benefits but they are backed by you, the taxpayer, who guarantees any losses. Heads, they win; tails, you lose. Paulson, with Bush and conservative backing, is pushing Congress to increase taxpayer commitment.
Thus, we have the free-marketers asking the "evil" government to guarantee their loses. It's really tough to admit that they seek a bailout. So tough, that Pres. Bush needed to say, "this isn't a bailout because they're still owned by stockholders." Duh?
The second part of the "bailout" is more hushed – the corporate-owned mass media didn't believe it worthy of "we the people's" knowledge. On July 15, the SEC (Security Exchange Commission) issued an emergency order to enhance investor's protection against "naked" short selling in the securities of Fannie and Freddie and seventeen other primary dealers – commercial and investment banks – foreign and domestic. This took effect July 21 and terminates July 29. The SEC, charged with the protection of ordinary shareholders, has played "Rip Van Winkle" for the past seven and one-half years. When the "big boys" started to hurt, Rip awakened in righteous indignation. SEC Chairman Christopher Cox stated, "Today's commission action stops unlawful manipulation through "naked" short selling that threatens the stability of financial institutions. We will continue our vigorous commitment to investors by working within the SEC and in close cooperation with our regulatory counterparts to promote the continued health and vibrancy of our markets."
I love his choice of words, "vigorous commitment," "regulatory counterparts" (that had to hurt using regulatory), and especially "unlawful" – it's almost a Bushism. If "naked" short-selling (selling stock you don't own; it's a common market strategy and a 'free-market principle) is "unlawful," why is the SEC order only for nine days – July 21 to July 29? Answer – it gives the impression of doing something to a gullible public.
The effect of the SEC order was immediate and dynamic. Fannies and Freddie stock prices, which had been in a nose dive, recovered 90% and 50% respectively within the first five days of this order. Of course, some of the biggest holders of these shares are the officers and directors along with the owners of powerful financial institutions. Also, Fannie and Freddie are among the most generous Congressional campaign donors and lobbyist hirers.
The stocks of the other seventeen financial institutions mentioned in the SEC order reacted very positively but not as dramatically. One of these, UBS AG is the bank of which Phil Gramm, McCain's now-resigned economic advisor, is vice chair. This bank is also charged by the IRS with helping wealthy American patriots hide income from U.S. taxation.
This mortgage crisis is a repeat of the S & L crisis of the 1980s when taxpayers once again were asked to bailout the rich. In that crisis, John McCain was one of the "Keating Five," pushing legislation favoring the rich and their institutions.
Free-market mythology works until it doesn't. Then corporatized government bails out the rich with middle class taxes. Pity the conservatives — How to hide this 3-4 months before an election!
Oops! The free-market myth-makers, ideologues, gurus, and practitioners have taken it in the shorts and are fighting back with non-free market strategies.
But first, we are experiencing a perfect example of the falsity of the conservative economic agenda and its idea of governing. Since Reagan they've promoted the "market solves all problems" myth that achieved its apex in the past seven years. The myth and its resulting policies have created the largest economic divide since the Great Depression. The myth faithful jumped right on the mortgage problem by rescuing one of the largest investment banks in the nation.
Now Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Association) are in the spotlight as Treasury Secretary Henry Paulson argues before Congress that the two mortgage giants are "too big to fail." Fannie and Freddie are unique hybrids, the creation of a corporatized government. Stockholders own and control them and receive the economic benefits but they are backed by you, the taxpayer, who guarantees any losses. Heads, they win; tails, you lose. Paulson, with Bush and conservative backing, is pushing Congress to increase taxpayer commitment.
Thus, we have the free-marketers asking the "evil" government to guarantee their loses. It's really tough to admit that they seek a bailout. So tough, that Pres. Bush needed to say, "this isn't a bailout because they're still owned by stockholders." Duh?
The second part of the "bailout" is more hushed – the corporate-owned mass media didn't believe it worthy of "we the people's" knowledge. On July 15, the SEC (Security Exchange Commission) issued an emergency order to enhance investor's protection against "naked" short selling in the securities of Fannie and Freddie and seventeen other primary dealers – commercial and investment banks – foreign and domestic. This took effect July 21 and terminates July 29. The SEC, charged with the protection of ordinary shareholders, has played "Rip Van Winkle" for the past seven and one-half years. When the "big boys" started to hurt, Rip awakened in righteous indignation. SEC Chairman Christopher Cox stated, "Today's commission action stops unlawful manipulation through "naked" short selling that threatens the stability of financial institutions. We will continue our vigorous commitment to investors by working within the SEC and in close cooperation with our regulatory counterparts to promote the continued health and vibrancy of our markets."
I love his choice of words, "vigorous commitment," "regulatory counterparts" (that had to hurt using regulatory), and especially "unlawful" – it's almost a Bushism. If "naked" short-selling (selling stock you don't own; it's a common market strategy and a 'free-market principle) is "unlawful," why is the SEC order only for nine days – July 21 to July 29? Answer – it gives the impression of doing something to a gullible public.
The effect of the SEC order was immediate and dynamic. Fannies and Freddie stock prices, which had been in a nose dive, recovered 90% and 50% respectively within the first five days of this order. Of course, some of the biggest holders of these shares are the officers and directors along with the owners of powerful financial institutions. Also, Fannie and Freddie are among the most generous Congressional campaign donors and lobbyist hirers.
The stocks of the other seventeen financial institutions mentioned in the SEC order reacted very positively but not as dramatically. One of these, UBS AG is the bank of which Phil Gramm, McCain's now-resigned economic advisor, is vice chair. This bank is also charged by the IRS with helping wealthy American patriots hide income from U.S. taxation.
This mortgage crisis is a repeat of the S & L crisis of the 1980s when taxpayers once again were asked to bailout the rich. In that crisis, John McCain was one of the "Keating Five," pushing legislation favoring the rich and their institutions.
Free-market mythology works until it doesn't. Then corporatized government bails out the rich with middle class taxes. Pity the conservatives — How to hide this 3-4 months before an election!
Labels: Fannie Mae, Freddie Mac
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