Monday, July 14, 2008

The Federal Reserve Crosses the Rubicon

US taxpayers to increase their stake in the 2008 banking industry meltdown

As the world economy continues its inexorable slide into recession, we receive news this morning which, once the situation plays out, will likely make the March 2008 Bear Sterns bailout look like small potatoes. In this connection, we'll spotlight a couple of news items from this morning.

First, from Paulson Puts Treasury's Weight Behind Fannie, Freddie:

July 14 (Bloomberg) -- Treasury Secretary Henry Paulson put the weight of the federal government behind Fannie Mae and Freddie Mac, the beleaguered companies that buy or finance almost half of the $12 trillion of U.S. mortgages.
Paulson, speaking yesterday on the steps of the Treasury facing the White House, asked Congress for authority to buy unlimited stakes in the companies and lend to them, aiming to stem a collapse in confidence. The Federal Reserve separately authorized the firms to borrow directly from the central bank. Fannie and Freddie shares rose in New York trading.
The steps would bring the U.S. closer to giving an explicit guarantee for the debt sold by the shareholder-owned, federally chartered companies. That reflects a need for the government to bail out an economy that's been rocked by the worst housing recession in 25 years, the credit crisis, and soaring energy costs.
"They appear to be crossing the Rubicon," Sean Egan, president of Egan-Jones Ratings Co., a credit-rating company based in Haverford, Pennsylvania, said, referring to Caesar's invasion of Rome to set up a dictatorship.
Next, we get something from commodities investment hawk Jim Rogers: Fannie Mae, Freddie Rescue a `Disaster,' Rogers Says:

July 14 (Bloomberg) -- The U.S. Treasury Department's plan to shore up Fannie Mae and Freddie Mac is an "unmitigated disaster'' and the largest U.S. mortgage lenders are "basically insolvent,'' according to investor Jim Rogers.
Taxpayers will be saddled with debt if Congress approves U.S. Treasury Secretary Henry Paulson's request for the authority to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac, Rogers said in a Bloomberg Television interview. Goldman Sachs Group Inc. analyst Daniel Zimmerman predicted the mortgage finance companies' shares may fall another 35 percent.
"I don't know where these guys get the audacity to take our money, taxpayer money, and buy stock in Fannie Mae,'' Rogers, 65, said in an interview from Singapore. "So we're going to bail out everybody else in the world. And it ruins the Federal Reserve's balance sheet and it makes the dollar more vulnerable and it increases inflation.''
The chairman of Rogers Holdings, who in April 2006 correctly predicted oil would reach $100 a barrel and gold $1,000 an ounce, also said the commodities bull market has a "long way to go'' and advised buying agricultural commodities. [...]
"These companies were going to go bankrupt if they hadn't stepped in to do something, and they should've gone bankrupt with all of the mistakes they've made,'' Rogers said. "What's going to happen when you Band-Aid and put some Band-Aids on it for another year or two or three? What's going to happen three years from now when the situation's much, much, much worse?'' [...]
The U.S. economy is in a recession, possibly the worst since World War II, Rogers said.
"They're ruining what has been one of the greatest economies in the world,'' Rogers said. Bernanke and Paulson "are bailing out their friends on Wall Street but there are 300 million Americans that are going to have to pay for this."
US taxpayers can surely thank their lucky stars that the kindly folks at the FED and the US Treasury Department have the foresight to rescue the banking industry from the results of their own recklessness and perfidy. And as continuing infusions of hundreds of billions of US dollars continue to stream into our already inflationary economy, and the purchasing power of the our currency continues to descend into the realm of "play money," remember... they're doing it all for us.



Curmudgeon said...

What's fun is that all these Wall Street big business Republicans like Phil Gramm and his student, John McCain, scream "socialism!" at any suggestion of government regulation, and chant endlessly about the need to "get government off the backs of business." Until, of course, the bottom falls out. And then, suddenly, we hear about how absolutely necessary it is that government bail them out, not permit them to fail, and so on endlessly.

As Paul Krugman keeps pointing out, the goal of the Republican Wall Street Mafia is to find ways to socialize risk and loss, while privatizing profit.

danny said...

Very true, Curm.

What I find worst of all is the claim that a few taxpayer billion will be all that is needed to save the system today.

That's what they were saying last summer, which was about $500 billion in Federal Reserve money ago and about $160 billion in borrowed US treasuries ago (ie "stimulus checks"). . .

Most incompetent in history, or most corrupt?

It may be a wild ride from here on.

Wade said...

Have you all heard of the movie Zeigtgeist (? spelling) if not and you have an extra 2 hours or so, Google it. Part 3 of the movie (I think) talks about how the Federal Reserve has been slowly trying to take control of the country since Wilson signed the central bank idea into law.

I personally don't know that much and I've never taken the time to dig up all the facts myself, but this sounds like just another step in obtaining power!

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