Financial Mess Gets Messier
I am not what you would call an economist, but I'm pretty sure this is a horrible sign:
Alarmed by the growing financial stress at the nation’s two largest mortgage finance companies, senior Bush administration officials are considering a plan to have the government take over one or both of the companies and place them in a conservatorship if their problems worsen, people briefed about the plan said on Thursday.
The companies, Fannie Mae and Freddie Mac, have been hit hard by the mortgage foreclosure crisis. Their shares are plummeting and their borrowing costs are rising as investors worry that the companies will suffer losses far larger than the $11 billion they have already lost in recent months. Now, as housing prices decline further and foreclosures grow, the markets are worried that Fannie and Freddie themselves may default on their debt.
Under a conservatorship, the shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee — which could be staggering — would be paid by taxpayers.
Shares of Fannie and Freddie have already lost half their value today.
The problem here is that we're looking at another bailout of financial services. And so the taxpayer bears the risk of mortgage speculation caused by investors. They got rich for years but won't have to give that money back. Socialize the risk, privatize the profit.
Bonddad has more on Fannie and Freddie, which are sort of public and sort of not, and now will be completely public in this bailout scenario.
Amazingly enough, after the financial sector's deregulated Nirvana fucked up the economy for years, if not decades, to come, now the government wants more regulation. It's similar to how now, budget hawks want to tackle the deficit, after Republicans busted it, just in time to constrain a possible Democratic President.
Now all of this isn't to say that the Peterson foundation's basic idea "live within your means" isn't a good one. Many of us here in the blogosphere have been screaming this from the rooftops for years. (Welcome to the party, lads. Pass the ammo. And where were you the last 6 1/2 years. Hmmmm?) They're absolutely right that debt services charges are an awful thing to spend money on. But somehow the problem for folks like Peterson is never the precipitous decline in capital gains taxes, or corporate tax rates, or estate taxes; nor is it spending too much on the military, the huge bleeding ulcer of Iraq, or the massive tax cuts for the rich. Somehow it's people who need healthcare or old folks getting Social Security checks. Somehow there's never a billion dollars to say 'well, one way to fix medical costs is single payor, and every health care expert who isn't paid not to know, knows it" but there is a billion bucks to go after "entitlements". Somehow there isn't a billion bucks to go after the fat cats who benefit from bloated Pentagon budgets which don't make the US one whit safer.
And somehow there wasn't a billion bucks to stop Bush and the Republican Congress from going on a drunken warmongering spending and tax cutting binge, but now that there's a possibility that Democrats might be in charge, fiscal responsibility is important again. Spending money on tax cuts for the rich and for unproductive foolish wars is one thing—but the very idea that it should be spent on old folks and sick people, well, that won't do.
I really want off of this treadmill...