Both Fannie Mae and Freddie Mac were re-nationalized already on Sept 7 2008, and placed under FHFA conservatorship. IMO, they were never fully privatized – functioning only since 1968 as “Government Sponsored Enterprises” (GSE’s). Which was essentially an accounting gimmick allowing to remove them from federal budget balance sheet, but with implicit backing of federal budget. Not much capitalism here.

In regards to many views, expressed here and elsewhere, about market “regulation”, “over-regulation”, and “lack of regulation”:

While everybody has differing, sometimes polarizing opinions on the subject (some quite “fundamental in nature”), I am far from labeling such views as “capitalistic” or “socialistic”. For any market to function, there must a set of agreed rules and body imposing them. Like, for example, monetary system, or stock exchange. The minimalist approach and ‘pure’ capitalism with fully free market, as described and advocated by Adam Smith is basically Utopian in nature. Only 19th century America came close to it. Today’s world practices “mixed economy”. Even if one would like to go back in time, most likely it would prove to be impossible politically. Imagine repelling labor laws, minimum wage, social security etc. without committing political suicide.

So to go back to general issue of “too much or too little market regulation” – IMHO there are only two types : good and bad. Good ones are the ones that keep economy humming w/o excessive overheating or repeating bubble-and-bust cycles. Which ones we currently have – we all know. I think we have a great multiplicity and fragmentation of various regulatory bodies and laws causing the occasional chocking points and economic havoc. The system requires some overhaul, but who’s ready to take a bite at it?

Along with other undertones of the article, does anything in this quote from the article seem a slant away from capitalism? I have never been able to take the Economists content at face value.

“In another new report Richard Jerram, at
Macquarie Securities, concludes that America
“will not come close to repeating the experience
of Japan”, because its regulatory system, financial
markets and political structure will not let it
procrastinate for so long.”

Brian Brady over at Bloodhound, wrote a great article worth reading. In 3 bullet points… I think he nails it!:

http://tinyurl.com/54gd5e

Mortgage Chili

Are we really all prepared to see DJIA to drop to half or more for a decade? That it is possible, see where NASDAQ was at the hight of the tech bubble was and where it is now. I strongly recommend reading following two articles:

NYT: Save the Fat Cats

The Economist: Lessons from the lost decade

before making up one’s mind.

I do actually think (now) that the market can repair this organically with zero gov’t interference. I am convinced by Miron’s argument:

http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html

Jeff Miron is an economist at Harvard. He’s pretty smart. And his arguments make much sense, especially this one:

Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street’s hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

The costs of the bailout, moreover, are almost certainly being understated. The administration’s claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.

If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.

That makes so much sense to me that I can no longer support a government bailout of any kind. Lender of last resort, fine. Nothing more.

-rsh

Chris Brown

Yes, most loans are performing, but not these. That’s why these huge companies are going under and why the government’s now involved. Let’s call them for what they are – liabilites. If they were performing, we wouldn’t be having this discussion. What the gov will buy will be the worst of the worst of these liabilities so they can be taken off company books. Renegotiating terms will cost even more.

$700B can be put to better use.