Article: Nationalize This!

We (the world) have a big problem, Namely that the global economy is crumbling. That crumbling started, and was facilitated by, an ideology that markets (including financial markets) are self-regulating. It is a fundamental belief in laissez faire capitalism. However, the ideology combines with the ranking of corporations as fictive "individuals" and therefore that they should be protected from the intrusion of government in their affairs. The former belief ties to Adam Smith's theory of the "invisible hand" of capitalism. In its contemporary iteration, this means that people (including the fictive ones) will function within their own self interest, and that self interest includes "regulating" themselves against long term harm. Over the last quarter of a century, this ideology has been converted to policy and practice. We have seen the removal of regulating mechanisms in the United States. We have seen the tacit, and sometimes explicit, orders for regulators to either look the other way or to accept the self-reports of corporations as fact. We have also seen the creation of global economic system that is focused on placing control in the hands of corporate and monied interests that know no borders. Certainly in my lifetime, there has been no "invisible" hand. However, there has been one where that hand is deliberately obscured. In other words, every effort has been made to make the markets invisible. Alan Greenspan, who was Chairmen of the Federal Reserve from 1987 - 2006, played a significant role in institutionalizing this ideology. Therefore, it is significant that in his prepared October 2008 testimony before the Senate Committee on Government Oversight and Reform he stated:

As I wrote last March: those of us who have looked to the self-interest of lending institutions to protect shareholder's equity (myself especially) are in a state of shocked disbelief.

Under questioning regarding his "mistake," Greenspan replied:

I made a mistake in presuming that the self-interest of organizations - typically banks and others - was such that they were best capable of protecting their own shareholders. (see 16 sec YouTube clip)

This "mistake" by Greenspan and many others (neo-conservatives and neo-liberals alike) have led us to a situation which is far from "hitting bottom." George Soros stated that:

"We witnessed the collapse of the financial system," Soros said at a Columbia University dinner. "It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom."

Soros was attending the Columbia University 6th Annual Conference on Emerging from the Financial Crisis Friday, Feb. 20, 2009, sponsored by the Center on Capitalism and Society. Present were other economic luminaries, including Paul Volcker (one of Obama's economic advisers) who admitted "Even the experts don't quite know what's going on." The article also reports:

Volcker stressed the importance of international cooperation in creating a new regulatory framework, particularly for major banks that operate across national boundaries -- the reverse of what's happened in recent years.

In fact, the "experts" are saying "nationalization is the only way out." Therefore, as the stock market declines on fears of nationalization, Obama (and his spokespeople) are announcing that nationalization is not on the table. Each "expert" points to the sub-prime mortgages as the root of the problem. This is a shorthand for saying a lot of things. Many people are still holding onto the image of undeserving homeowners running a scam on mortgage lenders to get loans they could not afford. In other words, potential lendees scammed lenders. This is clearly not what happened. However, it explains public resistance to Obama's mortgage bailout plans. The reality is that it is the people who got scammed, and that this entire collapse was manufactured. I highly recommend reading Are YOU Listening, Rick Santelli? at Talking Points Memo, where the author details the housing situation (and collapse) in California. She states:

The harsh reality is that the financial community is to blame for not putting a halt to the sale of over-priced homes by just not writing mortgages on them. Not because there was something wrong with prospective homebuyers, but the home sale was flawed. How do you justify inflating the cost of a home by more than 200% in 5 or 7 years? How do you knowingly write a loan for that house? They did it because they could sell confusing mortgage products to customers in need of housing. And it would make the lenders loads of easy money.

Which brings us to the ongoing claim that "toxic assets" are at the bottom of the economic collapse. What is being implied is that the "toxic assets" are the foreclosed (and foreclosing) properties. What is reality is that we are dealing with "toxic investment" which leveraged mortgages and markets to defraud and exploit people receiving mortgages. The "toxic assets" we are acquiring are the leveraged investments. Therefore, the primary benefactors of the bailout, as with the "bank" bailout, are "toxic investors." In April 2007, MarketWatch reported "Mortgage crisis to hit holders of risky derivatives." In June 2007, Gillian Tett, writing at the Financial Times penned:

When Anthony Bolton speaks, bankers quiver. Last month the highly influential Fidelity fund manager took a sideways swipe at "cov-lite" loans, arguing that these instruments (which lack traditional covenants protecting investors) pointed to a world where liquidity had gone mad. This week, he laid into collateralised debt obligations, arguing that these instruments contained significant "risks" - and thus could create losses for naïve investors further down the road. Whether this claim is correct remains to be seen (unsurprisingly, many bankers do not agree with this assessment). But if Mr Bolton is even partly right, it begs an interesting question: namely if these instruments do end up producing losses, exactly who would be hit?

Well, we are beginning to see the "who," yet big money continues to be poured into the pockets of those who manufactured the investment schemes. I support nationalization; however, not nationalization of the banks. If we are going to nationalize something it should be the properties themselves. Take the banks (and investment firms) clear out of the picture. The government should step past the miscreants and renegotiate the mortgages directly with the homeowners. Let the government be the mortgage bank. Sound, and community oriented, credit unions and community banks can serve as the intermediaries. They have a vested interest in the community, and are more easily accountable to it - and to the government. Leave the toxic investors in the cold - not the victims of their avarice and the tax payers present and future. ------ Of Related Interest http://www.youtube.com/watch?v=55-A1-D3MR0 Soros Sees No Bottom for World Financial "Collapse". Pedro Nicolaci da Costa and Juan Lagorio. Reuters. 2/21/09. Greenspan backs bank nationalisation. Krishna Guha and Edward Luce. Financial Times. 2/18/09. Experts: Nationalization Is Only Way Out. Michael Gray. NY Times. 2/15/09. Obama tries to halt talk of bank nationalization. Ben Feller. Business Week. 2/20/09. Volcker sees greater international cooperation on regulations growing from economic crisis. Eileen Connelly. Newsday. 2/20/09. Mortgage crisis to hit holders of risky derivatives. Alistair Blair. MarketWatch. 4/02/07. Collateralized debt obligation. Wikipedia. Market insight: 'Risky' CDOs remain alluring. Gillian Tett. FT. 7/05/07. Gillian Tett: 'Derivative Thinking'. Economic Dreams - Economic Nightmares. 6/01/08. 2/22/09 Reuters, EU leaders back oversight, tax haven sanctions Greenspan Concedes to 'Flaw' in His Market Ideology (Update2). Scott Lanman and Steve Matthews. Bloomberg. 10/23/2008. Prepared Testimony of Alan Greenspan - Committee on Government Oversight and Reform 10/23/2008 (pdf)