Mortgage crisis has Washington putting aside free-market ideology

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Mortgage crisis has Washington putting aside free-market ideology
By Nelson D. Schwartz, Sunday, September 7, 2008

Despite decades of free-market rhetoric from Republican and Democratic lawmakers, Washington has a long history of providing financial help to the private sector when the economic or political risk of a corporate collapse appeared too high.

The effort to save Fannie Mae and Freddie Mac is only the latest in a series of financial maneuvers by the government that stretch back to the rescue of the military contractor Lockheed Aircraft and the Penn Central Railroad under President Richard Nixon, the shoring up of Chrysler in the waning days of the Carter administration and the salvage of the U.S. savings and loan system in the late 1980s.

More recently, after airplanes were grounded because of the terrorist attacks of Sept. 11, 2001, Congress approved $15 billion in subsidies and loan guarantees to the faltering airlines.

Now, with the U.S. government preparing to save Fannie and Freddie only six months after the Federal Reserve Board orchestrated the rescue of Bear Stearns, it appears that the mortgage crisis has forced the government to once again shove ideology aside and get into the bailout business.

“If anybody thought we had a pure free-market financial system, they should think again,” said Robert Bruner, dean of the Darden School of Business at the University of Virginia.

The closest historical analogy to the Fannie-Freddie crisis is the rescue of the Farm Credit and savings and loan systems in the late 1980s, said Bert Ely, a banking consultant who has been a longtime critic of the mortgage finance companies.

The savings and loan bailout followed years of high interest rates and risky lending practices and ultimately cost taxpayers roughly $124 billion, with the banking industry kicking in another $30 billion, Ely said.

Even if the rescue of Fannie and Freddie ends up costing tens of billions of dollars, the savings and loan collapse is still likely to remain the costliest government bailout to date, said Lawrence White, a professor of economics at the Stern School of Business at New York University.

“The S.& L. debacle cost upwards of $100 billion, and the economy is more than twice the size today than it was in the late 1980s,” he said. “I don’t think this will turn out to be as serious as that, when over 2,000 banks and thrifts failed between the mid-1980s and mid-1990s.”

Most of those losses were caused by the shortfall between what the government paid depositors and what it received by selling the troubled real estate portfolios it acquired after taking over the failed thrifts.

In the Chrysler case, Carter and lawmakers in states with auto plants helped push through a package of $1.5 billion in loan guarantees for the troubled carmaker, while also demanding concessions from labor unions and lenders.

While Chrysler is remembered as a major bailout, White says it was minor compared with the savings and loan crisis or the current effort to shore up Fannie and Freddie.

The government did not have to give money directly to Chrysler, and it actually earned a profit on the deal because of stock warrants it received when the loan guarantees were provided. At the time, Chrysler had a work force of more than 100,000 people.

Still, Ely makes a distinction between the rescue of Fannie and Freddie and the thrifts versus the aid packages for Chrysler and other industrial companies. “They didn’t have a federal nexus,” he said. “They weren’t creatures of the federal government.”

This effort is also different from the others because of the potential fallout for the broader economy and especially the beleaguered housing sector if it does not succeed.

Unlike a particular auto company or even a major bank like Continental Illinois National Bank and Trust, which was bailed out in 1984, “we depend on Fannie and Freddie for funding almost half of our mortgage market,” said Thomas Stanton, an expert on the two companies who also teaches at Johns Hopkins University.

“The government,” he added, “has many less degrees of freedom in dealing with these companies than in the earlier bailouts.”

9-11 Report Commissioner Zelikow Admits War was for “threat against Israel”

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The Israel Lobby (full text)

Key 9/11 Commission Staffer Held Secret Meetings With Rove, Scaled Back Criticisms of White House

“Third. The unstated threat. And here I criticise the [Bush] administration a little, because the argument that they make over and over again is that this is about a threat to the United States. And then everybody says: ‘Show me an imminent threat from Iraq to America. Show me, why would Iraq attack America or use nuclear weapons against us?’ So I’ll tell you what I think the real threat is, and actually has been since 1990. It’s the threat against Israel. And this is the threat that dare not speak its name, because the Europeans don’t care deeply about that threat, I will tell you frankly. And the American government doesn’t want to lean too hard on it rhetorically, because it’s not a popular sell.


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Links;

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Philip D. Zelikow

America’s Dirty Little Secret – We are Bankrupt!

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David Walker, the Comptroller General of the United States proclaims that our current standard of living is unsustainable unless drastic action is taken. He warns that funding shortfalls for the Medicare program is five times worse than Social Security, and it will take $8 TRILLION to pay for what is promised today to beneficiaries, of which we have ZERO!

This unrealistic “promise” is fiscally irresponsible and is mortgaging the futures of our children and grandchildren.

Watch as the federal government’s dirty little secret is revealed!

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The the United States Top Accountant, the person who monitors and US Budget and Spending. And he is the one raising the alarm bells!

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Even CNN, seems to be reporting part of the truth for a change – American has got nada – no mo money – bankrupt – in debt! Why does it take so much effort to wake up Americans from their slumber? Zombies would have an easier time understanding the facts.

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Learn who REALLY controls the U.S.Dollar and how these people are destroying America by design. The Federal Reserve Bank is neither Federal nor a Reserve nor a real Bank. Owned by a corrupt group of International Bankers, it is a privately owned monopoly, largely responsible for creating America’s National Debt. It is also a parasitic and unnecessary entity that literally creates American currency out of nothing and then collects interest on the backs of taxpayers for doing so.

Ever wondered why we keep trying to guess “Fed Speak”? Why are politicians elected to represent the people guessing and begging a private banker if he will or will not raise interest rates?

Read the full story, on Wikipedia;

Some believe the Federal Reserve System is shrouded in what its critics call excessive secrecy. Meetings of some components of the Fed are held behind closed doors, and the transcripts are released with a lag of five years.[69] Even expert policy analysts are unsure about the logic behind Fed decisions.[70] Critics argue that such opacity leads to greater market volatility, because the markets must guess, often with only limited information, about how the Fed is likely to change policy in the future. The jargon-laden fence-sitting opaque style of Fed communication, especially under the previous Fed Chairman Alan Greenspan, has often been called “Fed speak.”[70]