"profits are privatised and losses are socialised"

[WhiskeyGirl]

Free-market capitalism lies shredded ... while America's confidence is badly shaken

By Philip Delves Broughton
Last updated at 1:12 AM on 18th September 2008

The news from America this week should have been about Hurricane Ike, the 900-mile-wide monster which crashed into Texas leaving millions of people without power as far north as Ohio.

Instead it was of another hurricane, a financial one, of similarly biblical proportions.

But unlike Ike, this one was caused by people. Greedy, overcompensated 'Masters of the Universe' who, the moment disaster struck, went running for the lifeboats of the very government they so often vocally despised.

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And all the while, they took exorbitant salaries, justifying them on the grounds of their huge contribution to capitalism.

How bitterly ironic it is, then, to see these one-time freemarketeers becoming socialists overnight.

The schoolyard bullies of Wall Street have gone running to the state for help, pleading to be saved from destruction.

They deserve neither our sympathy nor the billions in taxpayer support they are now receiving.

The truth is that over the past few years, New York's major financial players have created a world of obscene economic excess.

Dick Fuld, head of Lehman Brothers, awarded himself £17.5 million worth of, now worthless, stock.

At Goldman Sachs, more than £9 billion was lavished on employee bonuses.

Bob Willumstad, the boss of AIG, received a guaranteed cash bonus of £2million in 2007, deferred until his sacking yesterday.

What, you might ask, were they being paid for, these men who ignored the most basic kitchen table economics by borrowing 100 or 200 times the value of their capital and whose actions now threaten the Western world with a major slump?

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America's total debt is now nearly $10 trillion, or $30,000 per citizen. Not since the aftermath of World War II have the public finances been so depleted. This is money borrowed largely from overseas, which must eventually be paid back.

I exaggerate, of course, but if America's financial woes continue, the American and Zimbabwean dollar will soon look inter-changeable.

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Nouriel Roubini, an economics professor at New York University and the most prominent prophet of doom over the past year, said yesterday that America had become the USSRA - the United Socialist State Republic of America - a country where 'there is socialism for the rich, the well-connected and Wall Street - where profits are privatised and losses are socialised.'

Until yesterday, the U.S. government had not bailed out a financial institution - unless it was a bank - since the Great Depression.

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Significantly, President Bush is scarcely to be seen in this drama. He has devolved all responsibility to his Treasury Secretary, Hank Paulson, a towering ex-investment banker who is now effectively running the country with his hit squad of bankers and lawyers culled from Wall Street.

But Paulson is looking exhausted. With each passing nightmare, he looks ever more like he would be rather off pursuing his hobby: bird-watching.

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Instead, he will go down as the man who nationalised large portions of America's financial industry.

For Bush, this week is another shovel-full of earth on his political coffin.
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In the final months of his presidency, he has implemented the largest nationalisation programme in 75 years.

Paulson's challenge is keeping the economy functioning. He cannot afford to be ideological about bail-outs when he knows the disorderly collapse of an AIG or Fannie Mae would mean complete financial disaster.

But will the lessons be learned? Or the perpetrators of this massive theft from the U.S. taxpayer ever be held accountable?

Will the bankers who created this mess pay back the fees they took in the process?

The seizure of a few of their yachts and mansions by the government would certainly focus the minds of the financial class.

America is now convulsed by a massive crisis of confidence. The country feels that everything it stands for and does is being questioned.

The disastrous wars in Iraq and Afghanistan, along with China's recent Olympic success and Russia's military swagger into Georgia, have already revealed the threats to America's superpower status.

Even the greatest cheerleaders for the American way are today suffering grave doubts.

Jim Cramer, the host of a wildly popular television show about investing, and a booster of American capitalism, called the behaviour which led to this crisis 'monumentally outrageous and stupid. Self-interested and self-absorbed'.

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America's addiction to consumption has left it exposed to those who supply it with oil and cheap credit.

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It's not so long ago that it was fashionable in Europe to attack America, spitting at the last superpower's financial might and the bullying force of its military. The past week has seen it utterly humbled by the markets.

For every American dream, it turns out, there is an American nightmare.

http://www.dailymail.co.uk/news/article-1057395/Free-market-capitalism-lies-shredded---Americas-confidence-badly-shaken.html

[WhiskeyGirl]

An interesting take on the Fannie/Freddie problem -

Fannie Mae, Freddie Mac execs now offering advice to Obama

Senator's links to mortgage giants also include campaign contributions

Posted: September 17, 2008  9:10 pm Eastern

By Jerome R. Corsi  © 2008 WorldNetDaily

Fannie Mae headquarters in Washington, D.C.

Campaign contributions from Fannie Mae and Freddie Mac made to Barack Obama may backfire if the Democratic presidential hopeful wages an aggressive campaign to cast blame on rival John McCain and the Republicans in Congress for the mortgage-related losses that forced the U.S. Treasury to take over the quasi-governmental mortgage giants.

A review of Federal Election Commission records back to 1989 reveals Obama in his three complete years in the Senate is the second largest recipient of Freddie Mac and Fannie Mae campaign contributions, behind only Sen. Christopher Dodd, D-Conn., the powerful chairman of the Senate banking committee. Dodd was first elected to the Senate in 1980.

According to OpenSecrets.com, from 1989 to 2008, Dodd received $165,400 in Fannie Mae and Freddie Mac campaign contributions, including contributions from PACs and individuals, followed by Obama, who received $126,349 in such contributions since being elected to the Senate in 2004.

In contrast, McCain warned of the coming mortgage crisis as he pressed in 2005 for regulatory reform of Fannie Mae and Freddie Mac.

"For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac – known as government-sponsored entities or GSEs – and the sheer magnitude of these companies and the role they play in the housing market," McCain said on the floor of the Senate in 2005, speaking in favor of the Federal Housing Enterprise Regulatory Reform Act of 2005.

McCain pointed out Fannie Mae's regulator had stated the company's quarterly reports of profit growth over the past few years were "illusions deliberately and systematically created" by the company's senior management, which resulted in a $10.6 billion accounting scandal.

The bill passed the House but was never brought up for a vote in the Senate, largely because of Democratic opposition to change in the Fannie Mae and Freddie Mac regulatory structure that remained in place until the Treasury takeover two weeks ago.

As evidenced by the failure to pass the Federal Housing Enterprise Regulatory Reform Act of 2005, the Democrats in Congress have repeatedly fought back Republican Party efforts to reform the two mortgage banking giants.

Instead, Democrats in Congress have sought to preserve the quasi-governmental status of the mortgage giants, seeing Fannie Mae and Freddie Mac as places to locate former top Democratic Party operatives, where they have earned millions in compensation, despite a continuing series of financial scandals. Enron-like accounting manipulation, for example, boosted earnings to a level at which massive executive bonuses could be paid.

In the aftermath of the U.S. government takeover, attention has focused on three Democrats with close ties to Obama who served as Fannie Mae executives: Franklin Raines, former Clinton administration budget director; James Johnson, former aide to Democratic Vice President Walter Mondale; and Jamie Gorelick, former Clinton administration deputy attorney general.

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Johnson earned $21 million in just his last year serving as Fannie Mae CEO from 1991 to 1998; Raines earned $90 million in his five years as Fannie Mae CEO, from 1999 to 2004; and Gorelick earned an estimated $26 million serving as vice chair of Fannie Mae from 1998 to 2003, according to author David Frum, a fellow at the American Enterprise Institute.

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In 1998, according to the Washington Post, Gorelick, as Fannie Mae vice chairman, received a bonus of $779,625, despite a scandal in which employees falsified signatures on accounting transactions to manipulate books to meet 1998 earning targets. The moves, in turn, triggered multi-million-dollar bonuses for top executives.

Gorelick was embroiled in another controversy over an alleged conflict of interest when a 1995 memo she authored as deputy attorney general surfaced while she was a member of the 9/11 commission.

The memo, which became known as the "Gorelick Wall," appeared to establish barriers that barred federal anti-terrorist criminal investigators from accessing various federal records and databases that may have assisted them in their criminal investigations.

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Last year, the Securities and Exchange Commission alleged Freddie Mac had engaged in accounting fraud from 2000 to 2002, imposing a $50 million fine on the company and on four executives fines for amounts ranging from $65,000 to $250,000.

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WND previously reported a panel chaired by Elena Kagan, dean and professor of law at Harvard Law School, speculated at the June two-day meeting of the American Constitution Society that Gorelick was a possible attorney general cabinet appointment if Obama should be elected president.

The decision by the U.S. Treasury to take over Freddie Mac and Fannie Mae could end up costing the U.S. taxpayer as much as $100 billion, although the extent of losses at the two giant mortgage companies remains to be determined.

According to the Wall Street Journal, Freddie and Fannie own or guarantee about $5.2 trillion worth of mortgages.

The riskiest loans held by Freddie and Fannie are known as "Alt-A" and sub-prime mortgages, worth about $780 billion, or about 15 percent of the total portfolio.

The federal government takeover of Freddie and Fannie passes to U.S. taxpayers the contingent liability for failures in the entire $5.2 trillion loan portfolio held by the two mortgage giants.

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http://www.wnd.com/index.php?fa=PAGE.view&pageId=75586

I wonder if they will ask those executives to return the bonus payments they did not earn?