Thursday, September 18, 2008

Privatize the Profits, Socialize the Risk

Here are several excellent articles on the recent financial meltdown in Wall Street from the last two weeks. (cross-posted in An Ordinary Person)

Wall Street Socialism from

So now the Bush administration proposes to make the federal guarantee explicit and even to offer taxpayer money to help recapitalize the two banks if needed. Everything has been nationalized -- except the profits and the pay scales of the bank's executives.

That's right. If the guarantees work, private speculators, having driven the stock down, will clean up on the upside. And the bank's CEO's will continue to pocket the multi-million dollar salaries that are de rigueur on Wall Street. Call it Wall Street socialism. Their losses are socialized; their profits are pocketed. You and I will pay for their failures. And if conservatives have their way, their families will pocket their successes, without even having to pay a tax for the transfer of the estates we've helped to create.

Wall Street's Just Deserts from the Washington Post

At the risk of speaking ill of the dead, what good was Lehman Brothers, anyway? And if Merrill Lynch was so bullish on America, why is it that, despite the torrent of foreign investment that flowed in to Lehman, Merrill and their Wall Street peers over the past half-decade, so few jobs were created in America during that period of "recovery"?

During the late, lamented Wall Street boom, America's leading investment institutions were plenty bullish on China's economy, on exotic financial devices built atop millions of bad loans, and, above all -- judging by the unprecedented amount of wealth they showered on the Street -- on themselves. The last thing our financial community was bullish on was America -- that is, the America where the vast majority of Americans live and work.

The Joys of Ownership from the New York Times

So, ladies and gentlemen, how does it feel to be the new owner of those two big and banged-up mortgage companies, Fannie Mae and Freddie Mac? Not exactly the kind of real estate you were looking to buy, you say? Felt you had swallowed enough garbage after the Bear Stearns bailout tapped you for $29 billion?

Make no mistake: we, the American taxpayers, are amassing quite a portfolio of flotsam and jetsam in the mortgage bust. It certainly brings new meaning to the notion of an ownership society, doesn’t it?

To be sure, the terms of the Mac ’n’ Mae rescue deal are still sinking in. And it will be years before we know how much taxpayers will have to pay for the privilege of backing these out-of-control entities. But in the meantime, here are some of the joys that ownership in Mac ’n’ Mae might bring.

The proud new owners — the taxpayers — could be asked to cover such niceties as the pay packages awarded to the chief executives, Daniel H. Mudd at Fannie Mae and Richard F. Syron at Freddie Mac, as they exit the accident scene. Estimates for what these arrangements might cost: $24 million in severance, retirement benefits and deferred compensation for both men.

That’s not all. When the inevitable shareholder lawsuits are filed against Mac ’n’ Mae’s executives, who professed until the bitter end that their companies were in fine financial shape, who might cover the costs of defending those suits?

Why, you and I, the taxpayers, silly.

Wall Street and Washington: How the Rules of the Game Have Changed from

The undoing of that New Deal regulatory regime, and its replacement, largely under Republican administrations (although Glass-Steagall was repealed on Clinton's watch), with what some have called the "socialization of risk" has contributed in a major way to the mess we're in today. Beginning most emphatically with the massive bail-out of the savings and loan industry in the late 1980s, Washington committed itself, at least under conditions of acute crisis, to off-loading the risks taken by major financial institutions, no matter how irrationally speculative and wasteful, onto the backs of the American taxpaying public.

Despite free market/anti-big-government rhetoric, real-life Washington has tacitly acknowledged the degree to which our national economy has become dependent on the financial sector (Finance, Insurance, and Real Estate -- or FIRE). It will do whatever it takes to keep it afloat.


Truthiz said...


Very informative resources; Thanks for posting them!

Of course, now, with all of this mess unfolding, I'm forced to Really educate myself about the American financial system_much like I had to do back in 2002, concerning "neoCONservatism" and Zionism.

And predictably, I'm finding it_ Crony monopoly (cartels) capitalism_ AIN'T pretty.

In fact, it's d*mn Ugly!

Who says "organized CRIME crime is dead"_?!

Black Political Analysis said...

Sad that it came to this. The $1 trillion bailout that we're looking at should be financed this way. Tax the most those who profited the most from the speculative bailout. Tax not at all those who never made a dime (i.e. renters and homeowners who were misled into buying mortgages they could never afford).

The Angry Independent said...

Great articles...

I think we should all be given some of the profits from the stock the government is taking over... and we should all get an annual check, as shareholders.

my head almost exploded when I saw a report today regarding $1 Trillion dollars in government bailouts. That's on top of all the other obligations (deficits) that the Country has.

They keep piling on things that Americans will still be in the process of paying for 1 & 2 generations from now.

When we need money for roads, schools, healthcare, etc... The thugs in Washington (Republicrats) want to have these big debates about how to pay for it.... there always seems to be no money for anything that benefits everyday folks... but when it comes to special interests, and these corporate rescues, there is hardly even a debate in Congress. This stuff happens with lightning speed.

It takes them years (sometimes over a decade) to build a new Veterans hospital...but they can spend billions on corporate bailouts for the rich in the matter of a week, week and a half. Amazing!

I know they probably had no choice...since AIG had its tentacles in everything...and Fannie and Freddy was responsible for over 60-65% of Mortgages... but it was bad policy and lack of oversight (and foresight) that led to the problems in the first place. They knew that these tricky, complicated investment schemes were hard to track and allowed companies to get away with inflating earnings, while taking unacceptable risks. But members of Congress are so corrupted (even owned) by the lobbyists from these corporations, that they looked the other way.

I heard a report from the BBC last night about how even Obama is being bought by these people.

Even he is 'on the take' so to speak. That's why I can't take these guys seriously when they say they are going to reform. I'll believe it when I see it.

Liberal Arts Dude said...

It still boggles my mind how we are in a massive Catch-22 situation: (1) do nothing, let these financial giants fail, and face a complete meltdown of the economy. Or (2) bite the bullet and bail out these failed giants by nationalizing these companies backed by taxpayer money to the tune of trillions.

Speaking as a taxpayer I would have much rather those trillions go to things ordinary people can use and enjoy in a tangible way -- roads, bridges, hospitals, education, parks, health care, etc. -- instead of bailing out these Wall Street fat cats.

Now that the nation is in a bona fide crisis, I am actually looking forward to the Sept. 22 debate (and the others coming up). There is absolutely no room to hide from the issues for both candidates now. No more celebrities, no more lipstick. I want meat and potatoes and actual serious discussion of what solutions Obama and McCain will offer to this mess we are in. No more vacous soundbites and no more faux populist rhetoric.

It's so easy to sound like a populist and a reformer by saying the right buzz words. It's quite another to actually be for real about it. To both candidates (and this goes to the Independent and third party candidates as well): lay your cards on the table how you plan on fixing this mess.

The Angry Independent said...

It will be interesting to see how McCain and Republicans spin this at the debates. Because McCain (McSame) has been one of the Senators who led the way in efforts to deregulate the financial industry. Obama has been given so many gifts...that he let pass. If he doesn't pounce on this... then he will lose even more of my confidence.

Hopefully Obama will have plenty of facts as ammo to use against McCain. Obama is an atty, so he should know that he should be prepared... there is certainly plenty there.

Time permitting, I will try to dig up McCain's voting record on regulation/deregulation.

But I have a feeling that at the debate, the Rethugs will completely repackage McCain into a different person, lol. He will become the ultimate change agent who has been a staunch supporter of regulation. They are pinning their hopes on the fact that Americans just don't have the info. That's why Obama should put the info out there right now... regarding McCain's voting record, any archival footage...all of it. McCain is a sitting duck right now... w/ broken wings. Giftwrapped....just waiting for Obama to take advantage. But after watching Obama pass up 3 or 4 other opportunities within the past month or so... anything is possible.