When the going gets weird, the weird turn pro. - Hunter S. Thompson

13 July 2008

The most deceitful form of socialism

Professor Willem Buiter, blogging for the Financial Times, has a modest proposal--and some "inconvenient truths"--to discuss with American taxpayers:
On July 11, 2008, the New York Times reported that US government officials were considering a plan for the US government to take over Fannie Mae and/or Freddie Mac if their financial situations were to worsen due to the US housing crisis. These government officials were also reported by the New York Times as stating that the government had also considered calling for an explicit federal government guarantee of $5 trillion on debt owned or guaranteed by the two companies through legislation. You can see why the creditors to these GSEs don’t seem to be too worried. There are many forms of socialism. The version practiced in the US is the most deceitful one I know. An honest, courageous socialist government would say: this is a worthwhile social purpose (financing home ownership, helping my friends on Wall Street); therefore I am going to subsidize it; and here are the additional taxes (or cuts in other public spending) to finance it.
Instead the dishonest, spineless socialist policy makers in successive Democratic and Republican administrations have systematically tried to hide both the subsidies and size and distribution of the incremental fiscal burden associated with the provision of these subsidies, behind an endless array of opaque arrangements and institutions. Off-balance-sheet vehicles and off-budget financing were the bread and butter of the US federal government long before they became popular in Wall Street and the City of London.
So let’s call a spade a bloody shovel: nationalise Freddie Mac and Fannie May. They should never have been privatised in the first place. Cost the exercise. Increase taxes or cut other public spending to finance the exercise. But stop pretending. Stop lying about the financial viability of institutions designed to hand out subsidies to favoured constituencies. These GSEs were designed to make losses. They are expected to make losses. If they don’t make losses they are not serving their political purpose.
So I call on Secretary Paulson, Chairman Bernanke and Director Lockhart to drop the market-friendly fig-leaf. Be a socialist and proud of it. Come out of the red closet. The Soviet Union may have collapsed, but the cause of socialism is alive and well in the USA. Granted, the US version of socialism is imperfect thus far. The federal authorities have mainly intervened to socialise the losses in the financial sector while allowing the profits to continue to be drained off into selected private pockets. But that is bound to be an oversight. It surely cannot be the intention of such committed Marxists to target taxpayer-funded largesse solely at the very rich and at a few favoured, electorally sensitive constituencies. Fannie and Freddie are, or will be, safe in the hands of comrades Paulson, Bernanke and Lockhart.
Update, Sunday evening: A few hours after I posted this, CNN announced that the Treasury Department and the Federal Reserve have a plan prop up Fannie Mae and Freddie Mac, undoubtedly hoping to head off more bloodletting when US markets open Monday morning.

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