Monday, September 08, 2008

United States: "More Communist than China"?

Chairman, National Committee To Save
Fannie and Freddie
: "Thanks for the moo-lah"

If you live in the United States and have successfully paid off your own mortgage, congratulations. Now your reward is that you can pay to save devil-may-care banks and their enablers, Fannie Mae and Freddie Mac, who herded millions into buying homes they couldn't afford. As widely expected, the latter two institutions, incompetent and corrupt to the bone, are now wards of the state.

Jim Rogers, the commodity investor, says: "America is more communist than China is right now. You can see that this is welfare of the rich, it is socialism for the rich … it's just bailing out financial institutions."

It's not only a matter of "the government" — you, taxpaying sucker — plunging US$100 billion or so to make Fannie and Freddie whole again. With the federal deficit in deep space anyway, what's another hundred billion? (Or two or six hundred billion, who knows what the reckoning will eventually be?)

No, the thing is, we have just officially abandoned any pretense that we have a capitalist economic system self-regulated by Adam Smith's "invisible hand" of the market. The U.S. economy is now a government-directed system. Institutions are too big to fail. You are not. You are free to go broke without let or hindrance, as long as Bear Stearns, Fannie Mae, etc. stay dry.

Not to mention, in the case of Fannie and Freddie, their top managers who got their positions as political plums, ran their organizations aground, and can now retire gracefully or step into another feathered nest.
Under the terms of his employment contract, Daniel H. Mudd, the departing head of Fannie Mae [whose shareholders are lighter by 86 percent at this writing], stands to collect $9.3 million in severance pay, retirement benefits and deferred compensation, provided his dismissal is deemed to be “without cause,” according to an analysis by the consulting firm James F. Reda & Associates. Mr. Mudd has already taken home $12.4 million in cash compensation and stock option gains since becoming chief executive in 2004, according to an analysis by Equilar, an executive pay research firm.
Richard F. Syron, the departing chief executive of Freddie Mac [shares down 82 percent at the moment], could receive an exit package of at least $14.1 million, largely because of a clause added to his employment contract in mid-July as his company’s troubles deepened. He has taken home $17.1 million in pay and stock option gains since becoming chief executive in 2003.
Rogers again: "This is madness, this is insanity, they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents. I'm not quite sure why I or anybody else should be paying for this."

But undoubtedly he has, quite legally and legitimately, gamed the system so that he won't be paying for this farce. Many of the rest of us can't say the same. Even to make a stab at paying off this new government expense, there will have to be higher taxes and printing presses or computers creating more dollars nonstop, hence higher inflation from now until someone notices that there is no longer a country left.

Have a nice life.

1 comment:

leadpb said...

I'm not sure about the actual scale of damage but isn't this situation a close parallel to the savings & loan outrage of the 1980s, where again there was no execution of justice?

These scenarios mimic the code of the medical profession (and Islam for that matter) in that the member-players *never* rat on one another or help third parties keep the system accountable. I doubt they could play fair without this inbred exclusiveness clause.

When the bitter lessons reach those at the top-- all parachutes disabled-- only then do we have a temporary equating of pain and loss. But never an equality of gain or reward.