STAFF NEWS & ANALYSIS
Treasury Removes Cap for Fannie and Freddie Aid
By Staff News & Analysis - December 31, 2009

The government has handed its ATM card to beleaguered mortgage giants Fannie Mae and Freddie Mac. The Treasury Department said Thursday it removed the $400 billion financial cap on the money it will provide to keep the companies afloat. Already, taxpayers have shelled out $111 billion to the pair, and a senior Treasury official said losses are not expected to exceed the government's estimate this summer of $170 billion over 10 years. Treasury Department officials said it will now use a flexible formula to ensure the two agencies can stand behind the billions of dollars in mortgage-backed securities they sell to investors. Under the formula, financial support would increase according to how much each firm loses in a quarter. The cap in place at the end of 2012 would apply thereafter. By making the change before year-end, Treasury sidestepped the need for an OK from a bailout-weary Congress. While most analysts say the companies are unlikely to use the full $400 billion, Treasury officials said they decided to lift the caps to eliminate any uncertainty among investors about the government's commitments. But the timing of the announcement on a traditionally slow news day raised eyebrows. "The companies are nowhere close to using the $400 billion they had before, so why do this now?" said Bert Ely, a banking consultant in Alexandria, Va. "It's possible we may see some horrendous numbers for the fourth quarter and, thus 2009, and Treasury wants to calm the markets." – Yahoof

Dominant Social Theme: Just making sure …

Free-Market Analysis: Well thank goodness that the American administration has stepped up to the plate and done the right thing – the bailouts of Fannie Mae and Freddie Mac are apparently not even going to cost a cool trillion in taxpayer dollars all told. Of course, we're inclined to wonder what the government is doing in the mortgage market in the first place, since it makes such a hash of it.

We are old enough to remember that the Fannie Mae and Freddie Mac mortgage solution was seen as a kind of celebratory union of public and private markets. It was supposed to be the cutting edge of a new kind of finance in which, finally, government had figured out its role in a way that enhanced the marketplace. But alas it was not to be. There was in fact an implicit understanding in the markets that the US government would stand behind its two mortgage giants and in the last crisis, this understanding was strained to the limit – but held. The government indeed shelled out what it needed to for these agencies' intemperate bets and there seems to be no discussion that government would not do so again. The American government is firmly and directly entrenched in the mortgage market.

The amount of power that the American government – denials are besides-the-point – has assumed over the private sector in the past say 50 years is quite astonishing. There is seemingly NO sector of the economy that is safe from the dead hand of government anymore. With Congress starting to get involved in determining salary issues even compensation will be a political football.

How did American exceptionalism give way to empire? It began when the Civil War (or War Between the States) made it impossible for a state to leave the union. The second and third major milestones were the imposition of a central bank and an income tax. Now government could take what it wanted from people's pockets and inflate away an additional chunk through central bank money printing. Citizens could not leave if they didn't like it – the war had made that clear.

And so it has come to this. Without restraint, government has grown and grown again. Here at the Daily Bell, of course, we don't think any of this is coincidence. We think there is an animate force at work, a power-elite that seeks a to consolidate control over populations, especially Western populations, for purposes of wealth and control.

HAPPY NEW YEAR: To all our readers and feed-backers! … We hope you had a great '09 and look forward to an even better '10. The power elite didn't have a great a '09, the way we see it. The Internet proceeded on its way, in our opinion, making life difficult and upsetting the best-laid social promotions. Global warming is an obvious example of an Internet-related problem in that Copenhagen and "climate change" in general received such a chilly reception that it is hard to see how this meme will ever become truly functional again. Wars for "democracy" didn't do so well either, with the Iraq war still simmering and Afghanistan turning sour. Swine flu never fulfilled its promise, with citizens for some reason showing increased distrust of the vaccines that were supposed to inoculate one against this oft-promised plague. The biggest story of all, of course, is the virtual collapse of the post-world-war fiat-money/corporate/government edifice that was supposed to provide the world with ever increasing amounts of plenty. Instead, the collapse of modern finance has shaken Western instrumentalities to their core. Central banking, especially – with its unjustifiable, anti-free-market posture – has come in for a lot of criticism. And the banking industry itself, along with its government enablers, has been seen for what it is, a monopoly excrescence of a top-down fiat-money system. Gold, that "barbarous relic" that started the decade at around US$250, ended 2009 well above US$1,000. Gold was the best investment of the decade by far (with silver tagging along for the ride) and there is no reason why 2010 shouldn't see increased prices for honest money as the paper-money edifice of government capitalism continues to totter. The Bell will be happy to bring this process of "creative destruction" to you in installments every day.

After Thoughts

We are also convinced that the Internet itself is gradually making it impossible for the power-elite to promote the various dominant social themes that make its power grabs successful. Without any way of justifying its incursions into the marketplace and constant depredations against entrepreneurialism, the elite is in a fix. It has all the wealth in the world but its machinations are increasingly exposed and those who are its victims are less apt to be sheared. The elite shell game depends on the assent of the victimized, but the internet has already put way too much information in the hands of those who were not supposed to figure out what was going on, or not until their various death-beds anyway. This is a problem for those involved in the presentation of such memes. The next decade will be interesting.

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