September 8, 2008
The Facts
In an interview with CNBC of Europe today Jim Rogers said “America is more communist than China is right now. You can see that this is welfare of the rich, it is socialism for the rich; it’s just bailing out financial institutions”. Rogers went on to say “this is madness, this is insanity, they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents. I’m not quite sure why I or anybody else should be paying for this.” CNBC’s Geoff Cutmore seems to agree with Rogers. He said “the US government takeover of the GSE’s makes the US the most socialist system in the world, outside of places like North Korea and Cuba”. Cutmore reminded us of how our own politicians had criticized the French when they bailed out Credit Lyonnais and Alstom, calling the French weak anti-capitalist, and accusing their political system of being morally corrupt because they wouldn’t let business go through a natural process of failure.
My View (with some more facts)
A very basic definition of socialism is “a ruling class of intellectuals, bureaucrats and social planners who decide what people want or what is good for society and then use the coercive power of the State to regulate, tax, and redistribute the wealth of those who work for a living”. In other words, socialism is a form of legalized theft [quote]. What Rogers and Cutmore are talking about is a reverse of this; stealing from working class and giving it to the wealthy. And it’s very hard to argue against that point given what’s happened with Bear Stearns and now with Fannie Mae & Freddie Mac, and all the others who seem to be lining up for a taxpayer handout.
The Big 3 automakers have already lined up for a hand out. The “advertised” asking price is $25 billion, but the Detroit Free Press quotes executives at the three companies as saying they would need about $40 billion to “ride out their current troubles”. Others say they will need over $50 billion. But if it’s like any other “big business” and government estimate, the real price will be nearer to $200 billion.
Soon to follow the Big three will be many more banks and financial institutions; Silver State Bank of Nevada became the 11th bank to fold in 2008. Many in the industry estimate that as many as 1000 financial institutions will fail before this is all over. At the end of June of this year examiners were closely watching 117 institutions that were on the verge of failure. But generally it is only the big banks like IndyMac, which cost taxpayers up to $8 billion, that is given any serious notice.
Alan Greenspan is telling the feds not to use taxpayer money as a “magical piggy bank”. Greenspan says congress needs to come up with a clear process for handling bailouts, with “laws that specify and limit the conditions for bailouts”. But I’m afraid if we leave it up to our own government to word a law like that, it will end up like so many other bills that are passed by congress; screwing the working class taxpayer while padding their own pockets and the pockets of their wealthy friends, which is pretty much what we have now.
What happened at Fannie and Freddie is a perfect example of socialism in reverse. According to Eric Dash of the New York Times in an article published by CNBC, these two companies showered riches on their executives, Wall Street bankers and Washington lobbyist, but now the taxpayers are the worst case losers. Dash points out that even with the government taking over, the two current CEO’s will most likely walk away with huge paydays. Under the terms of their contract, Daniel Mudd of Fannie Mae will depart with $9.3 million in severance pay providing his dismissal is “without cause” (see my post referencing CEO contracts), in addition to the $12.4 million he has already received as CEO. Richard Syron of Freddie Mac will get $14.1 million in severance. His bigger pay check is because of a clause he had added to his contract in July of this year (he was conniving enough to see the hand writing on the wall). His past pay as CEO was $17.1 million. Remember, this $53 million comes from the taxes you and I have paid. How good does that make you feel? Of course, all we’ll hear from them and their supporters is the “millions they lost in stock options as a result of the stock meltdown”. And the last thing they or anyone else will want to talk about is the $70 billion that stockholders lost, not to mention all the mutual-fund-billions that was lost.
In his interview with CNBC this morning, Henry Paulson said the taxpayers would be paid back before the common and preferred stock holders got their money, but he also agreed with Steve Liesman that subordinated shareholders (debt holders) would be paid before us taxpayers. Subordinated shareholders, although varied definitions apply, is basically someone who has made a loan to a corporation they own shares in. A short article by John Jansen entitled “Subordinated Debt Holders: Missed By the Bus?” talks about the subordinated shareholders of Fannie & Freddie and how they seemed to have made out on this bailout. His question, as is mine, is why should they get paid before us taxpayers?
There is one debunking I must take care of here, although I’ve already debunked this character on another point in a past post. Howard Glazer, a mortgage industry consultant, said on CNBC that without Fannie & Freddie there would be no mortgage market. In this post I said “he’s absolutely wrong”, and there “would be a ‘gold rush’ mentality of people opening up mortgage markets”. Well, in this article in the Washington Post David Cho and Binyamin Appelbaum, said “if the firms were privatized or liquidated, several large banks have said they are eager to compete in the business of buying loans from mortgage originators”. Even John McCain’s senior policy adviser said “the private sector could replace Fannie and Freddie’s role in the marketplace”. My point in my latter post was “let them fail”. Us taxpayers have been raped enough.
The fact is Fannie & Freddie has been nothing more than a taxpayer financed smorgasbord of opportunities for many to get extremely wealthy. Billions was made and billions lost during this fiasco. Over the past ten years the two companies paid lobbyist nearly $175 million. A lot of that money was to fight off additional oversight by the government. Therefore, we taxpayers paid millions to help the two companies rip us off for billions. And the lack of oversight is exactly what got them and us in the mess we’re in. Hellva’ deal!
To add insult to injury, all these corporations, along with George Bush and others, are so intent on completely erasing the tax burden of corporations. But they’re darn sure ready to ask for a free handout from us taxpayers after they’ve made a fortune and run the company in the ground.
No Comments so far ↓
There are no comments yet...Kick things off by filling out the form below.