I’m Not The Only One

Dah, comrade, vee are finally here.  Karl Marx vould be proud.

Why do I use a Russian accent?  Because in my opinion, the United States government has recently made the first necessary steps to becoming a socialist republic.

For years, corporations, their industry-wide political action committees with armies of lobbyists have been throwing millions of dollars in bribes to both Democrats and Republicans in Congress.  And now that these corporations and industries find themselves tumbling down as a result of decades of their own irresponsible fiscal mismanagement, it’s only natural that they should turn for help to the same political parties who they’ve been bribing all these years.

But interestingly enough, the federal government seems to have no problem offering multi-billion dollar bailout loans in exchange for equity-partial ownership-of these private corporations.

I can visualize all the Che Guevara shirt-wearing losers, the weepy environmentalists and every Marxist-friendly college student and liberal college professor who hasn’t spent ten minutes in the real world pointing the finger at corporations and capitalism for all this economic despair.  Commie pinko nitwits like Naomi Klein are screaming for more government intervention in corporations, placing the blame on deregulation.  Even Bill Maher, a favorite of mine who has actually managed to disappoint me once before, points his so-called libertarian finger at the big bad CEO.

Boy, people sure love a scapegoat, don’t they?  No matter how much we think we’ve evolved, we still seem to follow the same misguided beliefs.  I swear, if this was the 16th Century, we’d probably be blaming the Jews for our own economic mess, and all the liberals would be anti-Semites.

Capitalism is not the culprit but rather capitalism entangled with government power.  I mention all these liberal haters of capitalism because what they love most is socialism/communism.  They love the idea that a centralized megastate with absolute authority and control over the economy and our personal lives is the greatest thing that could ever happen to the United States.

Well, that’s exactly what they might be getting.  Earlier this month Freddie Mac and Fannie Mae, two large corporations who held millions of dollars in mortgages were nationalized by the federal government who basically bought both organizations’ debt in exchange for total ownership of these two lenders.  Now the federal government has bailed out AIG, the sixth largest corporation in the U.S. according to Forbes and the 18th largest corporation in the world, relieving the company of $85 billion in bad debt in exchange for ownership of 79% of the company.

If the word nationalize sounds vaguely familiar, it’s because it’s a word that describes a national government taking over a private corporation, especially a large one.  It’s what Fidel Castro, Hugo Chavez, Evo Morales, Vladimir Lenin, Robert Mugabe, and many other dictators have done after a victorious revolution with alleged socialist goals.  They assume absolute authority in their country’s national government and seize whole industries or the largest corporations and make them government agencies in an effort to control the national economy and the nation’s workforce.

This nationalization is being justified by the Bush Administration and the Federal Reserve on the grounds that the three megacompanies in question were “too big to fall”.  But no one has ever asked why these companies are so damn large in the first place.  The answer?  Government intervention.

Fannie Mae was created as a federal agency in 1938 to expand the country’s secondary mortgage market.  To the best of my understanding, a secondary mortgage market is where mortgages (home loans) that could not be paid off by homeowners are taken by the banks that offered the original loan who then sell the mortgage (and the property, of course) in the secondary market for another aspiring homeowner to pay off.  Why the private sector was not allowed to grow on its own is somewhat of a mystery to me, but I do have one theory.

This country has always had some kind of obsession over property ownership.  Maybe it comes from our national heritage, a country founded by white men whose fathers came from Great Britain, a kingdom in which the majority of the land was owned by a minority of the population, with the rest of the population owning nothing and living off land owned by rich and powerful British royalty.  For whatever reason, having as many Americans as possible become landowners has been a secret obsession of our government.

Remember Bush’s “ownership society” speech back in 2003?  Surrounded by one embarrassing failure after another, I guess Bush was kind of hoping this would be a positive in his legacy, that history would paint him (hundreds of years from now) asthis great President who believed everyone should become homeowners.  A lot of economists are blaming the over relaxed restrictions on mortgage applications on this, but I have yet to find any evidence showing that Bush’s agenda was any legal green light for lenders to suddenly loan money to anyone who could write their name on the application.

From the start of this country, the only people allowed to vote were property owners.  While it is better to own than rent, the federal government has never seemed to be patient enough to let the rate of private ownership (those Americans who do own property or take out mortgages to own property) grow on its own, without government intervention.

Perhaps Freddie Mac and Fannie Mae were created to speed of the rate of home ownership.  But this current economic crisis has shown that government intervention in the economy or in whole industries only creates more problems.

As a government agency Fannie Mae quickly became a monopoly in the secondary mortgage market.  Why?  Because unlike private banks who also buy and sell unpaid mortgages and foreclosed homes, Fannie Mae was an agency that did not have to worry about losing money by approving loans to people who could not afford to pay them back or to people with a bad credit history.

Also, unlike private banks which have only so much money on hand to lend out, a federal agency has an almost limited amount of funds to lend out.  So obviously Fannie Mae had a huge advantage over private lenders for the mere fact that Fannie Mae simply had more money to give out more loans.

But in 1968, Fannie Mae had so much debt the federal government pulled a straight Enron move and made Fannie Mae a government-sponsored enterprise (GSE) in order to to reduce federal debt.   Keep in mind that the debt still existed, only now it wasn’t the government’s debt, it was the debt of a private corporation.  A GSE is a private corporation that the federal government officially acknowledges as serving a public good.

The problem with this is that since the federal government officially recognizes Fannie Mae as serving a public good, GSE status can be legally viewed (especially by investors of Fannie Mae stock) as a corporation that will have the financial backing of the federal government should the company take on so much debt it cannot afford to operate regularly.  After all, if Fannie Mae is in fact serving a public good, the American people would no longer be served if the company went bankrupt one day.

Although Fannie Mae never made any claim to investors that their stock is guaranteed by the federal government, GSE status is very unclear in regards to exactly how much the government is willing to back these companies.  The term itself, government-sponsored enterprise, suggests the government is somehow involved in the company financially.

So what savvy investor wouldn’t put her money into a company whose financial stability appears to be guaranteed by the government (who collects trillions of dollars in tax revenue every year) as opposed to another company that does not have GSE status? Investors see it that way, the media sees it that way, the entire global financial industry sees it that way and the public sees it that way.

Homeowners (also members of the public) also see it that way, which may be why so many millions over the decades may have been quick to accept home loans they probably could not afford to pay back, confident that the government would help them out if they could not make payments on their mortgages in hard economic times.

The truth is, any business that creates jobs and provides Americans with the goods and services they need is serving a public good, no matter how many or how few people they may actually serve.  Technically, a neighborhood laundromat that creates five jobs and serves 30 customers a day is just as much of a provider of a public good as a company that creates 10,000 jobs and serves millions of customers a day, the only difference being that the second corporation provides a public good to many more Americans than the first corporation.

So why are only a handful of American corporations (only 15 companies since 1916, one government-owned corporation and one network of lenders whose official number I have yet to find) given GSE status?  Shouldn’t all American corporations have GSE status, or better yet, none of them?  It seems that the only criteria for obtaining GSE status is for the corporation to have started out as a government agency, which to me seems ridiculous.

Freddie Mac was created in 1970 by the federal government as a GSE in order to end the monopoly enjoyed by Fannie Mae.  By 2008, both Freddie Mac and Fannie Mae owned about half of the home mortgages in the U.S.  Other corporations with GSE status include Farmer Mac which offers mortgages for farms and rural housing, the network of Federal Farm Credit Banks, and the network of 12 Federal Home Loan Banks (which loan money to banks that loan money to aspiring homeowners).

Why is the government creating private corporations or granting GSE status to corporations?  And of all the industries for the federal government (whose trillion-dollar debt proves they do not know how to handle money!) to get involved with, why, oh why, the financial and credit industries?

As I said before, the problem does not lie solely with large U.S.-based corporations, but rather their intermingling with the government.  The reason these immense corporations grew so large was because government gave them a huge advantage over competitors, allowing them to have a monopoly or at least a disproportionate share of a specific market.  Now that the government has helped build these organizations into mismanaged giants, they have declared them “too big to fall” and have stepped in to take these companies over for the sake of their own survival

I tried to imagine why the federal government would want to basically dominate the mortgage market, even through lending to privately-owned lenders who do not have GSE status.  And then I remembered the Communist Manifesto, the manual for aspiring communist regimes written in 1847 by none other than Karl Marx, the father of communism.  In this manual are ten basic goals for a government to achieve if they wish to become a communist state.  What’s number five on that list?

“Centralisation of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly.”

I am by no means an expert on economics but I think any corporation with GSE status would enjoy an exclusive monopoly in their particular industrial sector or industry, as evidenced by Fannie Mae and Freddie Mac.  The fact that there are so few of these GSEs would mean the largest and most powerful sources of credit (mortgages are by far the largest means of credit) in this country are in fact centralized.

Are you scared yet?  I am.

I thought our nation’s wire-tapping without a warrant, bank monitoring for “security reasons”, the War on Drugs and our sky-high incarceration rate was enough of an indicator of our government’s totalitarian aspirations.  But now that I see these bailouts being translated into government ownership of large corporate monopolies, I feel our government has only just begun.

What irks me the most is that this is all being orchestrated by a Republican Presidential administration.  You know, the same party that accuses the Democrats of having communist aspirations, who demonize universal healthcare as “socialized medicine”?

Again, I must emphasize that I am not a financial expert, and if any of these statements are incorrect, please feel free to correct me.

The U.S. government is mostly to blame for this economic crisis.  Investors, executives, homeowners and the media are not insane.  Somewhere they must have gotten the idea that the government would back up these megacorporations should they fall flat on their faces.  The problem comes from Washington’s tinkering with the (un)free market, giving a few private corporations huge (and unfair) legal advantages over competitors, guaranteeing them the lionshare of a particular market, if not making them a near nationwide monopoly.

In short, this nation needs a very important Constitutional amendment.  When this country was founded, the U.S. Constitution included a declaration of a separation between church and state, to avoid the corruption that ran rampant in Old Europe as a result of the intermingling between organized religion and various governments.The next President should campaign for another addition to the U.S. Constitution: separation of corporation and state.

No more corporate regulations, including the ones that imply some companies’ asses are covered in the event that their CEOs don’t feel like running their businesses responsibly.

Keep the government from playing favorites and let the free market (as opposed to the unfree market we currently have) naturally weed out responsible companies from irresponsible ones.  Irresponsibly run corporations will not be able to compete with any competitors who run their corporations responsibly and will die out.  How well would you manage your own finances if you believed that you could ask the government for a big fat check everytime you screwed up on a massive level?

Had Freddie Mac and Fannie Mae not had the GSE advantage they did abuse, there would have been some actual competition for them.  The two semi-private lenders would have not had 50% of the $12 trillion U.S. secondary mortgage market, and they would not have been “too big to fall”.  In a free market, no corporation is too big to fall, and Mac & Mae would never have been able to lend out as much money as they did, especially to those percieved as bad credit risks.

Look at other megacorporations like Wal-Mart.  Why are they so huge?  Why do they seem to have virtually no competition in the U.S.?  Could the answer come from lobbyist money used to “persuade” crooked politicians to draft regulations that primarily benefit Wal-Mart and only Wal-Mart?

Don’t get me wrong.  By creating jobs and providing goods and services to Americans at affordable prices, they are certainly serving a public good.  But why are they the only ones doing it?  Why is there no real megacompetitor to rival Wal-Mart?

I wonder if I’ll wake up tomorrow to find all the land owned by the government, all my mail to have already been opened and re-sealed by the U.S. Postal Service and every telephone call I make begin with the following recording: “This conversation is being monitored and recorded by the Department of Homeland Security for your safety.”

I wonder if by this time next year, all major U.S. corporations will be partially owned by the government.  Already the Big Three (again, why are they so big?) have their lobbyists marching down to Capitol Hill to ask for bailouts for their own mismanaged companies.  Will Washington come to the rescue and bailout more overextended American corporations, with borrowed Chinese money, no doubt?

This country needs a clear and uncompromising separation of corporation and state.  Once that happens, all corporate regulation will go out the window (except for the rule prohibiting defense contractors from selling military technology to the public or to foreign governments) and Washington can tell the lobbyists to go home.

With no powerful and intrusive Congressional committees to bribe, corporations will have no other choice than to appeal to their investors, their employees, and their customers if they wish to stay in business.  That’s how real free market capitalism works, not with sweetheart deals and shady campaign contributions and complicated government regulations designed to suppress potential competitors.

This entry was posted on Wednesday, September 24th, 2008 at 6:07 am and is filed under Government Incompetence, Straight Up Scams, History, Government Corruption, Economics, 2008 Presidential Race, Government Interference. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.