The Takeover

Chris Dillow always makes One question his basic premises, and this Post more than most. The first thing which must be said states that markets are often wrong in judging economic policy. The judgement of the markets as to the felicity of the Government taking over Fannie and Freddie misses the essential Point: operations at these institutions were so bad, that Private retention would have led to a basic bankruptcy of the institutions; it was not expression that Public finance of Mortgages is the perfect medium. It commits American Taxpayers to a debt which has already depleted the funds of Private Stockholders, and rendered the U.S. Government liable at least for the debt held by foreign central banks. The likely Outcome will be that American Taxpayers will lose three times as much as Stockholders will. Real Truth states markets become as helpless as Governments, when they try to flee to Communism.

Paul Krugman asserts that the Government takeover of Fannie and Freddie was necessary, but it reminds greatly of the Japanese Crisis of the late 1980s. Paul claims that he and Bernanke worked out a strategy if a like Crisis developed in the United States. His commentary states that Bernanke followed the basic format of the Plan, which was interest-rate Cuts plus fiscal stimulus, but that the Plan did not accomplish the easing of Credit planned. I personally have real doubts about fiscal stimulus in the face of increased Income inequality, leaving the Poor only with a chance to maintain themselves for a longer Period before resorting to Private and Public Welfare, and higher Incomes are left with a large Tip which will not incite a Consumption splurge. Interest-rate Cuts are actually Inflationary, and encourage debt burdens, by enticing inefficient business operations to refinance and remain in competition for Resources with efficient businesses, so that Resource pricing is artificially driven up while Employment is only marginally improved. The ideal fiscal stimulus would be to set a maximum Income, then pay Mortgage payments below that Income level by reverse taxation, if and only if said payments make up over 40% of said Income. It should be known by All that efficient Operators would not be influenced by either Interest-rate Cuts or fiscal stimulus in the absence of favorable economic trends, and promotion of Idiots to Player status is itself stupid!

Everyone today is writing on the Government takeover of Fannie and Freddie; check the NYTimes and the Internet. I have read many Authors who stated that it was necessary, and, ah hell, I agree. I still have not heard any roaring enthusiasm for the Plan. I believe it is the policy of ‘Save the Banks, and screw the Stockholders’ in the Plan which leads to the less-than-wholesome endorsements. I do know in my bones that it will cost the Taxpayers at least as much as it did the Stockholders, and will only increase Mortgage extension with increase of Mortgage defaults, especially in a land of increasing Unemployment. lgl