Wednesday, July 23, 2008

On Fannie, Freddie, Saints and Sinners

There are some saints among the sinners in the Fannie Mae, Freddie Mac shakedown of the U.S. Congress.

One of the saints is the Wall Street Journal, which for years has inveighed against the dangers involved when private profit is yoked with governmental power.

In a recent column, Paul Gigot, the Editorial Page Editor of the paper, puts it this way:

“The abiding lesson here is what happens when you combine private profit with government power. You create political monsters that are protected both by journalists on the left and pseudo-capitalists on Wall Street, by liberal Democrats and country-club Republicans. Even now, after all of their dishonesty and failure, Fannie and Freddie could emerge from this taxpayer rescue more powerful than ever. Campaigning to spare taxpayers from that result would represent genuine 'change,' not that either presidential candidate seems interested."

The WSJ does not hesitate to name the sinners. Here is a rundown of previous postings by the Journal warning of the dangers of what one of my acquaintances in the business world calls “fascism lite.”

Among the sinners are U.S. senators Charles Shumer, Barney Frank (truly a citizen of the world) and former presidential candidate Chris Dodd.

In its current form the legislation passing through the congressional sausage machine is deeply flawed. It would, according to the Journal "give a new regulator the power to fire managers and put the companies into receivership in certain circumstances. At a minimum, however, the regulator should be given an explicit command to run down their portfolios of MBSs (mortgage backed securities) that have made them such risky monsters. And as the credit markets calm down, the regulator needs to limit their business so private-label mortgage securitization takes a greater role in the market and less risk is concentrated in two giant firms. Mr. Paulson should also support Senator Jim DeMint's proposal to bar the companies from the lobbying and campaign contributions that have allowed them to buy political immunity all these years."

Having passed the House, the bail-out bill now is headed towards the Senate, where Dodd will steer the flawed bill through and send it along to President George Bush, who has indicated he will sign it.

This is a president who has never feared to use the power of the purse to beggar the country. Yet all the fiery tongues that previously have questioned the president’s wisdom in financing a war in Iraq they said could not be won have strangely fallen silent now that he has promised to make whole a federal monopoly that, no attempt at hyperbole here, has thrown money into a black hole.

Teddy Roosevelt, one of the presidential saints of the two Republican and Democrat candidates now vying for dispenser-in-chief position in Washington and the first progressive, was wafted into office on a promise – which he kept – that as president he would bust up the trusts and monopolies that had a lock on the wallets of hard working, taxpaying citizens.

Since his time, it has become the business of Chris Dodd, the chairman of the Banking Committee, to bail out monopolists and federally created trusts Fannie and Freddie when their federally supported businesses go under.

The times have changed but not all change is good, and none of this change is progressive.

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