Postcards from the Bleeding Edge
Monday, September 08, 2008

  Nationalizing Fannie and Freddie

So Fannie and Freddie are now nationalized. Am I the only one who thinks that the federal government effectively owning over 1/3 of the housing stock in America is remarkably similar to any number of reprehensible lord/serf relationships, or, for that matter, communism?

There are a lot of ways to look at this. Very arguably, Fannie and Freddie helped cause the incredible runup in housing costs over the last couple decades. Before that, I don't know. As bad as it is going to get for the "haves", the have-nots have it worse - housing is still unaffordable, prices still need to come down, by a lot, AND they have to help foot the bill for the party that they couldn't attend.

I was rather struck by two details of the deal: Hooray for the little guy! He gets screwed (that said, I think that anyone still holding stock in these banks deserves what he gets) And the taxpayer gets to foot the bill, whatever it gets to be!Hooray for the big guys! They are gonna get paid! The government - people with guns and tanks - is going to enforce mortgage contracts now! Wall street rallies!

As for relief for the rest of us... well, I got lucky and sold my house a year ago, barely breaking even on it - and then left the country. I now know quite a few people that if they handed the government the keys to their property, and left, who would be far better off.

I used to say that Keynesian economics had two fatal flaws - 1) borrowing when the economy slumped and paying down the debt when it picked up almost never happened in practice - we borrow heavily in a slump and less heavily in an expansion. And 2) That, ultimately, the cost of trying to level out the business cycle over decades would result in a MAJOR slump because each borrowing cycle added just a little bit more weight to each successive cycle until the whole thing would collapse into mathematical chaos. By that, I mean a state where the traditional knobs by which governments fiddle with the business cycle stop working.

Chart of U.S. Money Supply GrowthPerhaps I'm right. But I'm not an economist. I note that the M3 statistic hit a major downtick at right around the same time that major banks began to fail... but the federal reserve claims that the m3 is irrelevant.

There's a song, "The Weight", by The Band, that strikes me as rather appropo' for today. I used to use it as a popular closer to a set back when I was still playing piano regularly. The chorus goes, in 3 or 4 part harmony:A lot of the rest of the lyrics are appropo', too.

Market forces DO work sometimes. It is highly ironic that - in response to high oil prices - gasp! - Americans reduced their driving consumption by 51 billion miles - AND that the Highway trust fund is nearly out of money. They are asking for a federal bailout, too, to the tune of 8 billion dollars.

You'd think that maybe less driving would = less roadwork?

Anyway, back to the bank deal. The feds are getting preferred stock AND 10% interest from their "investment" in Fannie and friends. Last I dared look, my savings account in my very solvent bank yielded .2% interest - that's POINT-2 PERCENT interest.

Real inflation is over 6%.

How do I get a piece of Fannie?

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Comments:
I think the next major leap in government will be the separation of Bank and State.
 
I have *always* and I mean *always* HATED the cutsie cutsie Fannie Mae and Freddy Mac names.

Call them what they are, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation respectively.

These are EVIL, VERY VERY EVIL
scams. Have been since inception.

They are not cute.
They are not friendly.

I have always hated how the folks like to put these cute cute names on these vile, horribly inappropriate funds.

ALWAYS.

Okay, that was a rant.
 
Oh, and Dave?
The reason you are getting point-2 % return on your savings,
is because you are GETTING FUCKED. And FNMA & FHLMC are a big part of the reason why.

Just so you are clear on that.
 
What is even more disappointing than the fact that the taxpayers are getting stuck with the bill YET AGAIN....is the fact that many of the people who stoked the fires of the housing bubble are now gliding gently on golden parachutes.....when the should be facing prison terms for their avarice.

I would have much rather seen some reasonable regulation and enforcement than a bailout!
 
Sad and ugly truth.

'Driving' actually doesn't really impact roads all that much. Less driving won't make that big a difference.

Freight and material transport on the other hand. Dump trucks and Tractor-Trailer freight hauling hammers roads to death.

remember when you used to see those 'This vehicle pays $SOME_BIG_NUMBER in road use taxes' ?
My knee jerk was always, 'Yeah, but yer vehicle does on average about 5x$SOME_BIG_NUMBER in damage, so what's your point?'

cutting back on driving is a good thing. Cutting back on the 3K mile average for most 'consumer' goods, 1.7K to 2K miles for the average food stuff would go a heck of a lot further to reducing that overall problem as well.
 
CPM: I am interested in the sourcing of your "3K mile average for most 'consumer' goods, 1.7K to 2K miles for food" comment.

Where I live now, food, at least, is traveling less than 20km to get to me, on average. I do believe that is a far healthier strategy for food to have a short path to consumption than the current refrigerate, preserve & factory farm models in the US.

It was not obvious to me until recently that the population move to the coasts, AND the outsourcing of so much consumer manufacturing was directly related to cheap (and subsidized) energy and transport.

If (when?) these end, the results will be interesting. I'd like it if people moved back from the coasts and closer to the land - it would help save the oceans, and probably would have health benefits as yet unapparent.

And lastly, I've *eliminated* driving from my life entirely. I catch a ride to a beach on a truck frequently, but have only touched a steering wheel once in 6 months.

Charles: Yea, I have a hard time summoning any sympathy for the hard core finance industry, which is isolated from reality (with derivatives of derivatives) and the financial concerns of ordinary people.

I have an equally hard time with the centralization of finance and the corresponding drag on government and the economy when it is successful (pulling money out of saner ventures), and the same drag when it fails (pulling money out of taxpayers) to me makes a strong case for limiting the size of these enterprises or decentralizing and downsizing to the state level. I do believe that markets are the most efficient way to spread risk around, but institutions should never be able to grow "too big to fail".

The dramatic increase in the m3 money supply set off all kinds of warning bells for me years go.

I have been trying to find out if there was a time where a small saver (as in my pathetic .2% interest bearing savings account) ever actually made money over inflation. All the money poured into propping up Wall Street subtracts from the safe and relatively sane investment in a local bank. What will it take to break the insanity?

I haven't heard of one broker leaping out of a building from remorse over their role in the current crisis, or vowing to donate a paycheck or two to 100 people in need. Perhaps criminal penalties, or lynch mobs would instill a conscience in some.

Interesting statistic of the day - Here's the list of contributions from the two failed banks to politicians over the last decade...
 
Sure Dave:

Up here in the US, pretty much *all* so-called Consumer Goods are manufactured somewhere in the Pacific rim, so that's a no brainer.

We could start harping about how the US abandoned it's manufacturing base in favor of 'outsourced' goods years back. How we were told that you can buy a toaster at $BIGBOX_MART and save $8, all you need to do is give up your job making toasters.

As to whether it is healthier to eat food fresh and ripe vs "refrigerate, preserve & factory farm" and TRANSPORT model, there is no question whatsoever, Not at all. Anyone who says differently is simply lying through their teeth.

Just google the "3000-mile-caesar salad" a phrase coined by James Kunstler. Actually, it's more like 20,000 miles, but that's okay.

I enjoy Kunstler, I don't agree with him. But he's more correct than incorrect. More right than wrong, imo. (not h).

He's the author of 'The Long Emergency' as well as a few other things. Email me, and I'll put you on to some of my podcasts of him. I don't have the right to release them, so I won't post the link.
 
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