Notes on the Fannie Mae/Freddie Mac Bailoutby
Robert Higgs The following text is drawn from the Associated Press report by Jeannine Aversa, “Fed to Rescue Fannie Mae, Freddie Mac.”
Yes, what is a government for, if not to save us from the impending disaster that its own policies have produced? Thank heavens for the government!
We may take it as a given that “such lending [will] prove necessary”; otherwise, these frantically fashioned keystone-cops high jinks will serve no purpose. Note, further, however, that lending at 2.25 percent when the rate of inflation is at least twice that great means that the lender is giving away money. The real interest rate on such a loan is negative. Worse, because the Fed itself is the lender, the loan will take the form of newly created money – that is, the loan will be pure inflation, a hidden tax on all assets denominated in dollar units, including dollar balances themselves.
Of course, the government always seeks to promote a noble purpose. And what could be more noble than pulling some leading crony capitalists away from the brink over which their own actions amply warrant their plunging? Our saviors protest, however, that the government’s every action aims only at helping the little guy. It’s music to the ears of the booboisie.
Ah, equity investment! Now we’re looking at overt government takeover. For laggard students, let us define socialism: government ownership and control of the major means of production (including production of financial services). In a pinch, we can always resort to socialism – after all, we are doing so only in order to save capitalism!
Blah, blah, blah.
But Freddie and Fannie are publicly owned corporations; they are listed on the New York Stock Exchange and regulated by the Office of Federal Housing and Enterprise Oversight. Hence, they must meet capital requirements determined by recognized accounting standards. So, why is the Fed being injected where it is not needed? (I leave the answer to this question to the student as an exercise.)
Of course, it wouldn’t do for the people to be afraid, even if the government’s financial house of cards is threatening to tumble down and crush them. Next, Dodd will tell us that the only thing we have to fear is fear itself – or has that line been used?
Here’s a general rule for you amateur political economists: whenever the government justifies a policy on the grounds that it must “stabilize” something (e.g., stabilize the Middle East, stabilize Iraq, stabilize Afghanistan, stabilize the commodity markets, stabilize the financial markets, stabilize the macro economy, etc.), immediately conclude that it is up to no good and hold on to your wallet.
But, of course. Democrats and Republicans in the government belong to the same thieving gang.
Evidently, Obama was absent the day the logic class took up the subject of internal consistency.
To which the only intelligent reply is, “say what”? July 17, 2008
Robert Higgs [send him mail] is senior fellow in political economy at the Independent Institute and editor of The Independent Review. He is also a columnist for LewRockwell.com. His most recent book is Neither Liberty Nor Safety: Fear, Ideology, and the Growth of Government. He is also the author of Depression, War, and Cold War: Studies in Political Economy, Resurgence of the Warfare State: The Crisis Since 9/11 and Against Leviathan: Government Power and a Free Society. Copyright © 2008 Robert Higgs
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If
Fannie and Freddie never “engaged in very bad mortgages,”
then why has the stock market awakened to the fact that together
they hold or insure more than $5 trillion of mortgage paper, a substantial
portion of which is more or less worthless. Were those “securities”
dropped on them by a monetarist helicopter? Or did these government-sponsored
companies simply wake up one morning and find themselves up to their
eyeballs in these ever-so-iffy promises to pay and say to themselves,
“How’d that happen?”
