risky business

earlier in the week, the fed announced that it was taking over fannie mae and freddie mac, the backbone of the american mortgage markets and lynchpins of the american economy. the effects that this seemingly innocuous action produces are numerous and complicated.

we are being billed 200 billion dollars to prop up companies that failed because of general mismanagement, terrible decisions, shortsightedness and hubris. this sum is in addition to the several hundred billions of dollars already spent on propping up several small banks and our war in iraq. our economy is being held together with a macgyver-esque contraption constructed of duct tape and chicken wire. the general public is being forced to pay freddie's and fannie's ceos their massive exit packages and help these lame companies limp along until our economy eventually rebounds.

but this is only the beginning of the story.

being as fannie and freddie were publicly traded companies and as such these companies were owned by shareholders, who now are out a serious chunk of money, there will be a massive class action lawsuit against fannie and freddie, which the plaintiffs can only but win. the federal government is now liable for whatever lawsuits are brought against the companies it takes over. so this means double bailout. we bailout the company and then the shareholders, with the second bailout costing untold billions extra. the second bailout's figures will never be figured into the first.

this is also ironic as the united states frequently criticizes european governments for injecting cash into it's own ailing industries. governments are not allowed to interfere with markets. when airbus received money from governments of the european union, the united states petitioned the world trade organization. now the united states is handing out money to any company that needs it, like it did with it's airlines after september 11.

capitalists always turn to socialism to bail their asses out of capricious capitalism's inevitable ebbs. from the great depression and it's "new deal", to the the savings and loan crisis of the 80s and it's subsequent laws and regulations, to our current situation, with inevitable regulations and nationalization, the proven stability of the socialist model is a last ditch tool to correct meltdowns. however, during times of positive economic activity capitalists are doing anything they can to have important regulations removed. the regulations are removed and the cycle starts anew.

the current crisis is further proof that the conclusion of any unregulated capitalism is failure. socialism must be applied at some point in the process. whether simultaneously, to promote stability, or at the end of the process, after there has been a breakdown. some form of intervention is inevitable.

link | rss | share | posted: 2008-09-11 12:12:18

more politics goodies:

misc:

subjects:

mixes:

written archive:

gallery archive:

links:

good things: