Two Cheers For Nationalisation 5

The Guardian’s Larry Elliott has written an excellent piece on Fannie Mae and Freddie Mac. I particularly like this passage:

But if the big financial institutions cannot – unlike, say, a car company or an airline – be allowed to founder, they also cannot be allowed to conduct themselves in the same way as companies where there really is a risk of failure. Congress will undoubtedly demand tougher regulations for the activities of US banks in exchange for bailing them out, and rightly so. If ever there was a time to bring in controls on the ability of banks to create unlimited amounts of credit, to restrict the more toxic forms of derivatives, to rein in the activities of hedge funds, to insist that remuneration structures are not biased in favour of reckless speculation, and to use anti-trust law to break up the power of the big institutions then this, surely, is it.

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5 thoughts on “Two Cheers For Nationalisation

  • Sabretache

    'Two Cheers'? – I don't think so. Nor any cheers. Pity the poor bloody taxpayer more like and the biggest pre-cursor yet to the impending collapse of the whole post-Bretton Woods globalised 'free-trade' system.

    It may surprise you to know that proprietory retail derivatives trading (mainly stock index futures) is my day job. Not that that is any endorsement of 'the system' – far from it; but one has to earn a crust eh?

    A sine qua non for success is to understand its fundamentally corrupt nature, the better to second guess the market-moving ploys of 'The Boyz'. Have you noticed for example how the really major planned market moving events are cobbled together over the weekends? – how the 'Regulators' always move in on small banks and other regulated entities judged to be 'failing' on a Friday afternoon AFTER the markets close? how other 'official' announcements are made the day before a major options expiry or an hour or so before the markets open. These are no accidents of timing; they are carefully timed to benefit 'The Boyz' – those favoured massive institutions relied upon by the Fed, the BOE, the US Treasury etc to do their bidding and be rewarded accordingly. If you don't understand all that – and a vast amount more – quite clearly – you can forget small-time trading. We do not have free markets any more (if we ever really did); we have manipulated markets and understanding the nature of the manipulation is key to making a living from them.

    This particular bale out is orders of magnitude bigger than anything before in the entire history of the world. It is not a bale out of the US housing market; it is an attempt to shore up an insolvent global banking system by having US government underwrite the Companies' Bonds, the biggest holders of which are China and Japan. In other words those who invested in toxic mortgage backed securities have had their investments guaranteed; those who invested in the common stock have pretty much lost everything.

    The name of the game for the big bank broker-dealer BoyZ has morphed into 'Socialise the risks and privatise the profits' – or lets screw the tax-payer.

    Apparently a group of the 'Major' dealers in Credit Default Swaps were in conclave yesterday. They had earlier announced that the FF bale-out amounted to a 'credit event' triggering @ $trillion in highly leverage CDO's. They were meeting to agree 'how to settle' these contracts. Nothing on the wires yet, but this could be the first hint of a cascading biggie that no amount of jiggery-pokery by The Boyz can halt – sort of unintended consequences and all that?

  • MilkMonitor

    New York Governor Eliot Spitzer:

    "Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye."

  • writeon

    this is, of course, a massively complex subject, the collapse of financial capitaqlism as we know it and the consequences for the rest of the 'real' economy and all the people who cling onto it.

    I'm not even sure one should call this 'nationalisation' at all, but rather a bail-out for the financial institutions financed by the state. I'm not sure what the real advantages are for the taxpayers really are, apart from averting, for a time, a total financial collapse. I'm sceptical that we'll really see more oversight and regulation of the financial markets, or even more responsible and less reckless behaviour.

    This could also, unfortunately, be too little, too late. A friend of mine thinks it's mostly buying time, patching things up, damage limitation, until the US election is over. A major bank failure and a Wallstreet meltdown wouldn't exactly help the Republicans get elected again!

  • Strategist

    Hale "Bonddad" Stewart is arguing in the Huffington Post that it is the foreign creditors, particularly the central banks of China and Japan, who have been calling the shots, and will be the beneficiaries of the bale-out/bail-out:

    Thanks to Lenin's Tomb poster Capella for the tip.

    I was much struck by the Yu Yongding quote:

    >>Yu Yongding, former advisor to China's central bank, put the matter bluntly: "If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic," Yu said in e-mailed answers to questions yesterday. "If it is not the end of the world, it is the end of the current international financial system."

    It may be time to sell your US dollars and buy something sounder, like Zimbabwe dollars.

  • ziz

    When President Bush took office the national debt was at $5.6 trillion; it was increased for the 5th time in his Presidency on September 27th last year 850 billion U.S. dollars to 9.815 trillion dollars by a vote of 53-42 . Last week it stood at over US$9.39 trillion, or US$124,400 for a family of four. Interest payments on the debt are already 9.5 % of all government expenditures.

    How FM x 2 liabilities figure in the US Accounts is beyond my pay grade, but it sure as hell doesn't reduce them.

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