Gore Vidal once observed that “what we have in America is socialism for the rich and capitalism for the poor”.
This weekend Treasury Secretary Henry Paulson gave us the perfect proof of this truism.
Fannie Mae and Freddie Mac are government created but privately owned for-profit housing finance companies. These two companies alone hold or guarantee some $5 trillion in debt, or nearly half of the U.S. mortgage market. Paulson announced that the Bush administration would seek congressional approval to bail out Freddie and Fannie by offering an unlimited line of credit to guarantee their debt, as well as authority to purchase their shares to supplement their capital base.
These are important pillars that our economy is built upon, so ensuring their continued stability is clearly necessary. However Paulson said the new subsidies were designed to sustain the two institutions in “their current form.” It’s worth mentioning here that in their current form the Chair of Freddie Mac last year “earned” $18.2 million dollars. Meanwhile in 2007 Fannie Mae CEO Daniel Mudd apparently deserved a 7% raise to bring his take home to $13.4 million…all while the company lost $2.1 billion and its shares fell 33 percent.
Now with foreclosures soaring and both institutions sustaining billions in losses both would likely be bankrupt if their assets were marked down to their current market value. The effect of these institutions failing would be utterly catastrophic to the economy so I can’t fault the Bush administration for using taxpayer money to prop up and recapitalize these two banks. However I can be outraged that the collapse of proper regulations and oversights illustrates that the Republicans have once again nationalized corporate risk while making sure that the profits and the pay scales of the bank’s executives remain private.
Conservatives fall over themselves talking about the powers of capitalism and how regulations aren’t needed in a “free-market” because it will self correct and adjust. And yet here we see in all its glory yet another example where you and I get to shoulder the burden of Wall Street socialism and pay for corporate losses while the regulations that would have prevented such reckless behavior are abandoned like so many Republicans’ first wives.
Since these corporations are so critical to the American economy and since the American public is already assuming the debt and risk these enterprises have taken on, why do we not nationalize them completely? We’ve already added the $5 trillion dollars of debt to the federal balance sheet, so once nationalized we could fairly mitigate some of risk assumed by the public with the associated assets. Add in the benefits of bringing executive salaries to sane levels, removing the risk inducing demand for unmaintainable profits, and adhering to some reasonable regulations we might just be able to bring some much needed confidence back to this sector of the economy.
The bailout of these critical institutions exposes the illusion that they are private corporations separate from the federal government, so we should drop the pretense of separation and stop funding this egregious example of conservative corporate welfare now.
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