Reactions to Bailout

Reactions to the bailout announced by Paulson on Sunday night are slowly appearing online. Bloomberg provides extensive coverage. Very similar to the announcement of the Bear Stearns bailout that was also announced on Sunday evening.

From cryptogon.com:

The firms that make the mortgage industry possible in the U.S. are about to be taken onto the books of the U.S. Government.

I don’t know of any clearer way of summing it up.

In all of my years of observing the farce of “the free market” in the U.S., it has never appeared more absurd than it does right now. This news is remarkable, even to someone as short the U.S. Dollar as me. This is take-your-breath-away kind of news.

Are they using the term “unlimited” because that somehow sounds better than $5.3 trillion, or is there something else we don’t know about yet? The U.S. taxpayer and dollar holders are essentially going to eat the real estate crisis.

The advice I used to give was: Get your ass, your family and your money out of the U.S. It’s probably too late for that. Dig in. Shelter in place. Brace for impact, etc.

From Paul Krugman posted today but written prior to the bailout:

The case against Fannie and Freddie begins with their peculiar status: although they’re private companies with stockholders and profits, they’re “government-sponsored enterprises” established by federal law, which means that they receive special privileges.

The most important of these privileges is implicit: it’s the belief of investors that if Fannie and Freddie are threatened with failure, the federal government will come to their rescue.

This implicit guarantee means that profits are privatized but losses are socialized. If Fannie and Freddie do well, their stockholders reap the benefits, but if things go badly, Washington picks up the tab. Heads they win, tails we lose.

[...]

And yes, there is a real political scandal here: there have been repeated warnings that Fannie’s and Freddie’s thin capitalization posed risks to taxpayers, but the companies’ management bought off the political process, systematically hiring influential figures from both parties. While they were ugly, however, Fannie’s and Freddie’s political machinations didn’t play a significant role in causing our current problems.

Still, isn’t it shocking that taxpayers may end up having to rescue these institutions? Not really. We’re going through a major financial crisis — and such crises almost always end with some kind of taxpayer bailout for the banking system.

And let’s be clear: Fannie and Freddie can’t be allowed to fail. With the collapse of subprime lending, they’re now more central than ever to the housing market, and the economy as a whole.

From Atrios:

Actually, Fannie and Freddie can be allowed to fail. Their shareholders can eat shit, and they can be reconstituted as a wholesale federal entities. There are zero reasons that I can think of that we should have shareholder owned entities which "probably but not necessarily" are going to get a government bailout every time they need it.

Both short and long term we might think that having such creatures exist to be mortgage backstops is a good idea. I probably agree with that. But there is no reason for them to be publicly traded companies.
-Atrios 23:23

more to come...

~BT