Fat Cats Belly Up to the Bailout Bar Again

Now it’s American Insurance Group, worlds largest insurance company, back at the Bailout Bar to knock down a few more for the road. Altogether, $150 billion will be ‘invested’ in another craven, irresponsible, corporate welfare cheat.

Just for a little perspective, $23 billion would end hunger in the world. We’re always too poor to lay out the bucks to rescue dispensable little people from hunger, the ultimate deprivation, but always have the wherewithal to help mendacious corporations in their hour of need.

I don’t know about anybody else out there but if I were going to shell out $150 billion dollars of my hard earned dough, I’d want to have a say in how that money was used. As of now there are, in effect, no hard-wired restrictions on how the bailout money is being spent. Some recipient banks are using their freebies to purchase other banks, others are buying treasury bills when the bailout money was supposed to go for loaning. A full 10% of the money will wind up going for the same immense bonuses to top execs as before they lined up for the government dole.

Now General Motors is taking its turn showing up at congress with its begging bowl. If any corporation were allowed to fail it should be GM. Car manufacturing in America should continue but GM should be left to an ignominious death. Not saying Ford and Chrysler are that much better, but GM especially deserves the axe for the burial of its electric car, the EV1. I won’t repeat the whole sordid story; suffice to say that GM went through great lengths to get the few electric cars it did produce – by California government mandate – off the road, including refusing money from leaseholders who, at the end of the leases, begged GM to let them buy them.

Along with the other car companies, the labor unions and members of congress from auto producing states, they lobbied hard to prevent increased mileage standards. As a result, vehicles kept getting bigger and more destructive of the earth in the process. They ignored more efficient hybrid technologies for as long as they could, while concentrating on designing new gas-guzzling behemoths. They blew off trying to build better quality, longer lasting cars so they could concentrate on bigger profits and ever more insane compensation levels for top management.

Why is it a Japanese car will still be going strong at 200,000 miles while an American car is ready for the scrap heap at 150,000? Is it because American CEO’s are paid so much more than their Japanese counterparts? Japanese CEO’s earn about 11 times the average pay of their workers while American CEO’s earn upwards of 400 times.

Without a change in corporate culture and governance, the bailout babies will revert to the same stupid, greedy focus on immediate profits that caused them to falter in the first place. At the present time, corporations are forbidden to take the needs of society into account. They are literally prohibited from being good corporate citizens if that action impacts on shareholder value.

Take the case of Ben and Jerry’s. The two entrepreneurs wanted to earn a profit and manufacture a quality product as most firms would, but they also felt strongly about creating a healthy workplace for their employees and a cooperative atmosphere with their suppliers: one happy family. As a private company this was no problem, Ben and Jerry could run it as they saw fit.

But then grow or die reared its ugly head. You know, the idea, which totally defies logic, that a company that isn’t growing must be dying. What is so hard to comprehend about a company earning the same healthy profit year after year? But B and J got caught up in the growth mantra and decided becoming a public company would allow them to expand their products and good ideas to a wider sphere.

Big mistake. Once you have stockholders their well-being is the only consideration you are allowed: it’s not written into law, you’ll just get sued if you don’t put them first. Once B and J was public a multinational pounced with an offer to buy the company that could not be refused on any altruistic grounds else the certainty of that aforementioned suit.

The lamest of all presidential ducks has now taken to defending capitalism itself, pleading with the world not to try to regulate too much. Somehow the regurgitant coming out of his mouth is sounding a little hollow. If unbridled capitalism is so great, why not follow its own precepts and let poorly run companies die?

The big three automakers should be allowed to go bankrupt.

The hard assets could then be purchased by the government for creating new companies with the common good written into their charters. Once back on their feet, shares could be sold to the public but the government should keep a controlling interest. Capitalist purists will tell you that the government can’t effectively run a giant corporation, but what could possibly be worse than what current management has done?

It is sickening and disheartening seeing trillions of dollars spent feeding the wealthy and superwealthy while there is so much dire need in the world; it is truly painful to watch. Worse yet is knowing that money will not meet its objectives. The world economy is going down regardless; all that those trillions will do is let the fat cats breathe a little easier in the knowledge that their exorbitant compensation packages are intact.

Ultimately, it makes no sense whatever to provide that largesse to the very same people following the same economic beliefs that caused the problem in the first place.

Political Climate Change

Conventional Wisdom will insist that launching universal health care in America is out of the question in light of the financial meltdown. On the contrary, this is not only a good time to do it but society will literally have no choice.

Fifteen percent of Americans currently lack health insurance, another 30% are underinsured - large numbers of people who’ve been declaring bankruptcy for medical reasons actually had insurance but were buried in co-pays. A friend who came down with breast cancer who had reasonably good insurance had to come up $18,000 in co-pays for her treatments.

When large numbers of people become unemployed they will also lose their medical coverage. Concurrently, many employers, taking drastic measures to try to cut costs and remain in business, will reduce or eliminate insurance.

The current system will begin to go on life support, leading to a total breakdown. Government rescue will be imperative; action will also be essential from the standpoint of needing to cut costs on a systemwide basis. In spite of the many uninsured and underinsured in the states, per capita medical costs are consistently higher than in Europe; nearly double that of the UK. The current system will simply become unaffordable.

Change will also come from falling property prices: after the dust settles from the financial crash, that will turn out to be blessing for the bottom half of society. Once people have eaten their losses, both imaginary – when a way overpriced property goes down to a rational level it feels like a loss to the individual involved but it’s really just a reality check - and real – people are loosing their homes - housing will become much more affordable. In the process of throwing money at the wealthy - the economic imperative of the last 30 years - prices of many things have gone up, but especially in housing. Many Americans have been struggling to pay the rent for years; falling prices will provide some respite.

It was recently said that housing is still 10 to 15% overpriced, but that was based on the heady levels of artificially inflated neo-con economic irrationality. Thought of in the context of very high unemployment and general economic hardship, prices have to go down a lot more than that.

The punditry talks about the inevitability of boom and bust cycles: They are not inevitable. Ups and downs can not be avoided, but booms and busts are only part of the picture because of warped economic paradigms. Were subprime mortgages inevitable? Only because public policy made them so. If prevailing economic wisdom dictates that a government must do all in its power to maintain growth then there will certainly be extreme ups and downs.

The more frantically a government tries to push the economy upward, the more likely a serious crash on the downside, even though it may take a while. And it’s not like there’s no financial or monetary consequence when vast sums of money are expended on (ultimately futile) rescue and stimulus plans.

On the other hand, if the goal is long term stability and sustainability in a context of minimum income disparity (and no superwealthy) where every citizen has work to do and a home to live in, then there’ll never be another crash. The problem revolves around manic desire for growth.

Take Japan and Europe, for instance: There is constant lament over the very low growth rates they’ve been experiencing for a long time. But look more closely and you see mature and aging societies with stable or sometimes even declining populations.

Those kinds of societies have no reason to grow. Older people need and consume less with the exception of medical care. There’s no need to build a lot of new residential, commercial or government buildings in a stable population, only upkeep and a small amount of replacement is necessary. Infrastructure is largely in place, only maintenance is needed.

There is absolutely no reason for them to grow unless that growth involves societal advancements like renewable energy and conservation, more efficient transport, better educational and cultural opportunities; things that actually improve life and the environment. America needs some growth to provide for increasing population - entirely the result of immigration - and possibly to correct for extreme disparity in wealth, but to borrow and spend, to consume for its own sake - like building giant houses in the exurbs and manufacturing monster SUV’s to access those far flung mcmansions - is totally unnecessary, destructive and stupid.

Most important of all, now is not the time to pull back on tackling climate change because we somehow now can’t afford to. The extremely modest goals the world has set for itself will already have no impact whatever on the problem. They are only a start on a change of consciousness that will hopefully evolve into real progress on the matter; a change in thinking that might actually someday save the planet. The work that needs to be done to tackle the problem of global warming is the only kind of growth that makes sense.

The world cannot continue to increase its population and consumption and still survive. Fixation on growth must change. It is a theoretical impossibility that is nonetheless embraced by nearly all Serious thinkers and Important people.

The worldwide economic crash provides the opportunity to settle into a new, sustainable, lightly-living lifestyle; however, I am not optimistic. No matter how badly the Establishment has fucked up the world, they will insist that their way is the only way to right it; obviously a ridiculously inane conclusion.

Many people over the world are going to suffer tremendously from this man-made disaster, we can only hope against hope it isn’t totally in vain.

It may even be possible that the poor, who have not existed in American political discourse since Reagan, will actually have their needs considered again. If that does happen it’ll only be because a lot of formerly middle class people find themselves heading towards the bottom.

Meanwhile we can try to suspend our disbelief that the feckless, spineless, close to worthless Democratic Party will somehow find the will to do at least some permanent good – like universal health care, regulation of the financial sector and building of sorely needed infrastructure. The Dems haven’t had a leader with the guts to stand for anything for a long time. Will Obama stand up to the plate, play that role, come through for America and the world?

Slavering at the Public Coffers

In the latest twist to the sordid saga of hat-in-hand bankers slavering at the public coffers, central banks in England, France and Germany, for starters, are now guaranteeing loans between banks. According to conventional economic wisdom - the very same ‘wisdom’ that got us into this mess, I might add – if banks can’t lend to each other, they won’t have the money to lend to Average Joe, or his corner candy store, so he and small business, will, in turn, suffer.

There’s good reason they won’t lend to each other; they’re deathly afraid of not getting paid back since they know how many of their compatriots are teetering at the brink of the chasm. If that’s the case, and we undoubtedly know it is, then the governments involved may be liable for immense losses. This also may encourage the banks - not noted for being prudent or responsible - to borrow recklessly, knowing Joe will foot the bill in case of default.

This all brings me back to the question: Then what the hell are they doing with my deposits? That isn’t money to lend? Well, best I can make of it, econ 101 style, is that to maximize profits money has to be constantly in use; no idle times are allowed. As a result, capital needs are calculated down to the minute, so they essentially need emergency loans the get through many a day. They may also have more business than they have capital for so borrow from other banks to maximize their portfolios.

So what if they can’t lend to each other. That will not have any impact on their solvency, only their profitability. They simply won’t have as much to lend and people will have to wait a bit or defer their borrowing. All of which brings this down to the second question: What’s the big deal if Joe has to save the money to buy that 60” digital TV? Or wait till he has a substantial down payment before he can buy a new car? Is that suffering? He’s already drowning in tidal waves of high interest, credit card debt. And it does, after all, cost a lot more when bought on credit.

As for small business, banks are not the only source of working capital. It would seem to me that anyone with a viable company ought to be able to get private short-term money to tide them over cash flow problems. If they have to cut back temporarily, well, nearly everybody will so no great hardship.

The endless growth machine is not going to be jump-started or even restarted and besides, it is long past time for a paradigm shift. The world is drowning in pollution from excessive consumption. It wouldn’t hurt a bit for Americans, for only one nation of many, to retrench and start saving for the things they want.

Ah but the frantic scrambling on the part of governments to bail the banks is also designed to “calm” and “provide stability” to the markets. Now that a majority of Americans, when Investment Retirement Accounts are included, own stocks, it becomes a government priority to prop up the stock markets.

But stock markets, however much we hope and pray and cross our fingers that they will always go up, are not supposed to be propped up. They are supposed to represent true value. In an overpriced market we should be applauding, and playing happy music when markets go down, not when they go up.

Latest word is the US treasury is going to take stakes in nine major US banks including the likes of Citibank and Bank of America. The list also includes Morgan Stanley, et al, latter day Mom and Pop banks which in their previous incarnation were investment banks designed exclusively to help the wealthy play with their money. Once they realized how bankrupt they were they begged the Fed to make them just like your average, corner, small town bank and thus be able to join the banker bread line when the public money started to flow.

It should be mentioned that banks were not allowed to cross state borders as late as the sixties. Moreover, banks in Manhattan were not even allowed in other parts of New York state. It was a mistake to let banks expand so exponentially and become so large. Local banks will survive this crisis in far better shape than their multinational counterparts. Maybe once those giant banks are nationalized they should be broken up into smaller units; in this case, able to serve the real needs of the economy rather than concentrate on lascivious speculation.

Once you go down the path of nationalizing banks you also own the bank’s bad debts. In this case, we could be talking about liabilities of catastrophic proportions. As mentioned previously, while the total housing market totals about 10 trillion dollars, the market in derivatives based on that market is 45 trillion dollars. Derivates have no direct connection to the real world they are based on, they are simply bets on what the real world will do. And housing is only a small part of the derivatives market.

Liabilities to the public could be nation bankrupting, as is happening in Iceland, whose banks brought in large amounts of money from around the world to bet on these toxic and inscrutable financial instruments.

There is one good that can come of public ownership of the banks: The public can dictate lending policy. If it deems low income housing important, it’ll get built. Today that money may well go to financing sweat shops in China.

The silver lining, however, will come at a very high price.

The Financial World is Going to Shit Before Our Very Eyes

And it’s all happening so fast. A spark ignited in the US has turned into a world-engulfing wildfire. I was surprised at the ferocity at which it attacked European banks, who I assumed were less insanely greedy while subject to greater public restraint, but it seems they either bought into America’s toxic assets directly or copied the same shenanigans. They’ve also been hit with declining property markets – 16 of the world’s developed nations still have overvalued real estate – resulting in far less equity than they had assumed and the need to hoard resources.

Rising property values create a lot of ready cash. Until the financial system recently began to unravel, largely from declining real estate values, Americans kept their economy humming by borrowing vast amounts of cash against their properties – many of which now have mortgages greater than their house’s value. It would seem totally legitimate to borrow against equity in order to make long-lasting improvements to the house, but a lot of people essentially took out 30 year mortgages for purchases like luxury vehicles that they expected to have a less than a decade lifespan. About five percent of all property changes hands each year so a lot of money is also created simply through a rising market.

Well now, that money spigot has completely dried up. And you can bet that even when the mortgage money does starts to flow again, borrowers will have to come up with hefty down payments; which is exactly as it should be. Obviously, it has ominous portents for the real economy, since Americans will have to live within their means and actually save to be able to consume. While some will say this retrenchment couldn’t come at a worse time, it’s never fun to pay off old debts or cut back on the “Good Life”.

One way or another recession, or the scary “d” word, depression is inevitable. The capitalists are manically, frantically rushing around trying to save their asses with public money, but while they may stave off paralysis or bankruptcy in the banking system, nothing is going to change the fundamentals: the old economy is screwed and finished.

The credit system is currently frozen, banks aren’t lending to each other because they don’t trust each other, they’re afraid they won’t be paid back. However, after six months maybe a year, the money will start to move again and a new economy created from the ashes of the old. Certainly, there’s no way it can ever be the same, at least not for generations.

Thankfully, the US Treasury is moving toward purchasing stakes in troubled banks, as the UK is planning to do, rather than carelessly throwing money at them. As long as they are in some way nationalized people will not fear for their deposits. That should keep most from going under which in the end would cost a lot more than keeping them alive.

Every day it seems a new rescue plan is announced which is supposed to restore confidence in the markets. Each one is touted as the magic bullet that will bring stability and the speedy return of growth and prosperity. Forget it: pure wishful thinking.

The one thing, above all, that needs to change is the endless growth mindset. The entire world economic system is in thrall to a theoretical impossibility. It is unadulterated fantasy which cannot possibly outlive reality. By any sustainable standard, people in the developed world, but especially Americans, have been consuming far too much. Now’s the perfect opportunity to give the planet a rest, to develop an economic philosophy capable of providing a comfortable, if much less profligate, lifestyle.

While I applaud this calamitous economic correction, I don’t in any way wish to downplay its significance for the lower rungs of society: this is going to hurt. But the poor have always suffered, so they will take it in their stride. They haven’t even had more than the barest representation in government for a long time: What politician would ever propose a War on Poverty today? Yet that will be their biggest challenge in the coming years. Increased unemployment benefits, food stamps, general welfare, make work programs: the new New Deal is inevitable.

Meanwhile, even according to a former community organizer, soon to be our next president, the middle class now goes all the way up to $250,000 per year – and need a tax cut in the midst of spectacular deficits. They won’t suffer in the same way but they sure will have their dreams and aspirations severely truncated, not to mention have difficulty supporting their mcmansions and long distance gas-guzzler commutes.

Falling energy prices will provide a little respite but not for long. Within a year or two, China, India and other developing world economies, which will continue to barrel ahead, albeit a bit more slowly, will replace the demand that’s currently dropping in the developed economies. It’s still a finite resource in an expanding world; a world in which growth-forever economics will remain the Gospel.

All in all, it’ll be fun to watch.

Repugs Save the Day

I thought they were good for nothing, but here they’ve saved the Dems from their congenitally capitulative need to worship at the feet of the Bush.

Leading Democrat David Obey, in reference to the Repugs failure to back the bailout, summed up the problem thusly, “these guys would rather lose an economy than lose an election”. Within that little statement is a grand assumption – that the $700 billion will actually do the job – and a slap at Democracy – signifying how far the Dems have gotten from the real world.

Legislators are receiving mail against the giveaway in a ratio of 200:1 and higher. They could try to justify their vote against the wishes of their constituents by saying they are just citizens and really don’t know what’s good for them. They might also try to pass off their vote in favor by saying that Wall Street knows best what’s good for Wall Street: absolutely true and the very reason why the people are so solidly and vociferously against this plan.

The plan, after all, comes from Henry Paulson, former CEO of Goldman Sachs who earned hundreds of millions during his tenure there. Of course he would look at the health of Wall Street first. Where has he been while millions have been losing their homes? Or the Dems for that matter? The most they could come up with was a mortgage relief plan limited to helping a mere 5% of people facing foreclosure.

Ah but this is different, this is an emergency, a calamity waiting to happen and a bill must be passed ipso facto or the economy will grind to a halt and the taxpayer will suffer. Speaker of the House Nancy Pelosi tried to make it sound like the bill was designed to protect the taxpayer. Now I know that politics is all about spin and hype and bluster but that was risible: Borrowing $700 billion from the Chinese to give to the same fat cats who created this mess in the first place is all about Joe Taxpayer.

As far as saving the economy, the bailout is a total crap shoot, a Hail Mary pass with no grounding in reality. The $700 billion number was pulled out of a hat. They didn’t want to ask for anything less because it would have had a negligible effect. They couldn’t ask for a trillion, that would’ve boggled the mind.

If the legislation does pass it will be good money after bad: the toxic assets causing the problem are far in excess of the bailout number. Consider, while the total housing mortgage market is about $10 trillion, the derivative market based on housing is $45 trillion. How can that be? you ask. Well, it can’t, not in the real world, not in a financial system that actually made sense.

I’m not going to try to get into a long winded explanation of what derivatives are, except to say that they represent pure speculation: ultimately no different than casino gambling. To society they have no redeeming value. They are a means for high flying banks and hedge funds to play with money - the spectacular amount of money that’s been thrown at them through 30 years of neo-con policies of feed the rich.

The bigger problem than saving Wall Street’s ass is fixing the property market. If it isn’t stabilized first, the value of those assets is going to continue to tumble. And continue to bring down the system. If we take care of the little people then the banking system can begin to repair itself. If it seizes up, it won’t stay that way for long. If credit rules are tightened up as a result, then it’s about time. For a generation the American economy has been based on compulsive consumption by borrowing from the future. Any Econ 101 student will tell you that is not sustainable.

The Senate has just approved a tweaked version of the bailout rejected by the House. It includes raising deposit insurance from $100,000 to $250,000. I don’t know how stupid you can get to have more than $100,000 in one institution, but if you’ve got money in the bank then you deserve to get protection for your stupidity. On the other hand, if you are being kicked out of your house, whether through your own stupidity or the mendacity of mortgage lenders, well, in a free market there are winners and losers.

The revised bill also includes tax breaks for small business and the middle class. Great. We’re adding a trillion dollars to the national debt, so what we need is tax breaks for people who are already doing well, or at least well enough. How about a small transaction tax to help pay for the bailout and curb the rampant speculation that got us into this fix in the first place? Not a chance, Wall Street wouldn’t like that. How about a ban on derivatives, short selling and other market gambling, or at a minimum, a firm statement to the effect that institutions that indulge in such speculation are absolutely excluded from future government help?

No way. This is about feeding the rich, a easy purpose to accomplish. As for saving the economy, ostensibly the reason for this corporate welfare plan, if it does pass the House, look for a temporary uptick in the stock market and a bit less fear and panic, but don’t imagine that it’s actually going to solve any fundamental dysfunction in the system. At most, it’ll be a temporary respite in a long downward slide.

It took 25 years after the 1929 crash for the stock market to return to its former level. That’s what it’s going to take to fix the American economy and bring personal and public debt down to reasonable levels.

Cure Worse Than Disease

Now Bush is evoking the 72-hour, mushroom-cloud specter if Congress doesn’t immediately borrow seven hundred billion dollars to give free money to rich and craven bankers. According to Mister 27%, it’s the only action standing between economic catastrophe and a rosy American future.

Refusal to enact this legislation may well bring economic meltdown, but mostly to the bankers who caused this mess. Meanwhile, when talking $700 billion there are a lot of scenarios one might pursue to save the economy that don’t involve throwing money at the fat cats.

If millions lose their jobs, well, $700 billion will buy a lot of unemployment insurance, not to mention welfare for those who really need it as opposed to this bailout of the rich. That money will also pay to keep a lot of people in their homes, and with affordable mortgages. In the process of rewriting a lot of real estate loans, the banks would get a lot of money to shore up their finances and large numbers of paid off mortgages would clear a lot of bad and/or deteriorating debt. It would also make it more possible to actually put a value on those toxic mortgage-backed assets that are weighing down the system.

That would be far more likely to stabilize the real estate market than Bush’s giveaway. Bush’s plan, moreover, allows the money to be used to buy all kinds of bad debt from all kinds of institutions, so in the end result might not do much for the property market. Worse, $700 billion is actually a small part of the finance system’s true imbalance. What happens when the first tranche doesn’t work? Throw in another trillion or so?

If credit dries up, well Americans are already up to their necks. They’ve borrowed to excess. What better time to start retiring some of that debt? In the process the banks will have more cash. Bank deposits are insured up to $100,000, so everybody small is covered. If the insurance fund runs out of money, well, there’s always a piece of that $700 billion. If a bunch of banks go under, who cares, others will eventually come to take their place.

Property values may go down, but they are still too high by historical standards and harmful for society as a whole. Better for real estate to be cheaper so that a larger percentage of the population can afford to own.

So what if there is a recession. Americans have been working too hard for years; spending too much money buying too many things; maybe it’s time to slow down and take stock. Unwind, start from scratch, rebuild a smarter, more responsible economy. If people are out of work hire them to upgrade the country’s infrastructure and get cracking on sustainability and restoration of the environment. It’s called shock therapy, the very same wrenching changes the US has forced on many smaller countries that experienced financial problems.

Eighty percent think the country is going in the wrong direction so why put out all that dough only to further the same rotten system that is at the heart of the crisis. Let it sink. Wall Street had its fun, many of its denizens are fabulously wealthy, who cares if it goes under. Many of the activities of the financial institutions who’d be queuing up for the dole are purely speculative and singularly destructive: they are pure gambling and have no redeeming value. This is no different than bailing out a gambler who loses his shirt at the casinos.

It’s a good thing that many Repugs are also questioning Bush’s plan, otherwise the Dems would’ve felt compelled to prostate themselves once again before the worst president in history. They would’ve rushed to comply with his wishes else they take the blame for the doomsday sure to result. Even now there seems to be a certainty (in the punditry) that the bill will pass, after a bit of grumbling, with a bit of tweaking here and there, more or less in the president’s emergency timetable.

Big mistake, but I wouldn’t be a tiny bit surprised.

Too Big To Fail

Too Big To Fail

… first part written just before the latest bailout plan was floated…

A few days after sending Lehman Bros Investment Bank to the dustbin in order to uphold the concept of moral hazard the US government reversed itself and stepped up to the plate with $85 billion in public money for AIG, the country’s largest insurance company. Lehman with a mere $200 billion in assets wasn’t too big, but AIG with a trillion evidently was - possibly because it sold a lot of insurance on those down and dirty mortgage bonds that are now tanking big time.

This all came on top of the $200 billion of capital infused into quasi-government agencies Fanny Mae and Freddie Mac, $35 billion for the Bear Stearns bail last March and at least $200 billion before that that involved the treasury exchanging, to an array of banks, solid-as-the-US Government bonds for subprime assets possibly worth pennies on the dollar; hard to say, nobody knows for sure what they are worth.

Moreover, the money already expended on Freddie and Fanny may only be a small part of what the US may ultimately be liable for on their account. All told, even without the frightening possibility of additional trillions in liability, we’re probably talking a trillion dollars coming out of the public trough. By any standard a chunk of change; easy enough to imagine the good works that could come of that much dough.

The manipulators made out like jewel thieves packaging and trading their purposely inscrutable financial instruments, but now that their tomfoolery has turned calamitous, it’s Joe Sixpack to the rescue. Fanny and Freddie were once government agencies with strict rules to work to but in the mania for privatization that’s gripped the country in the past few decades they were turned into a hybrid where profits are privatized while losses, as we now see, are socialized.

Moral hazard is the idea that business people will make greedy and foolish decisions if they know that the government will bail them out; that they won’t have to pay for their transgressions. In the case of Freddie and Fanny, the US is obligated to rescue them no matter how crassly and stupidly they were run and regardless of the idiocy of privatizing them in the first place.

Now AIG has been rescued because it’s too big to fail; it’s demise would be catastrophic, we’re told. This however brings up a question that is somehow not part of the debate: If it’s too big to fail then maybe it should never have been allowed to get that big in the first place. Furthermore, investment banks are being sold at bargain prices to other banks so large they too will be too big to go under if/when they hit hard times.

Breaking News… The Congress is preparing legislation to purchase at least $700 hundred billion of additional subprime based, mortgaged-backed, toxic (in Wall Street lingo) securities from tanking banks. In exchange for securities of unknown value, the banks will get real money. That way they can get right back to creating the next financial meltdown. And why not? It’s fun making tons of money and until it all goes bust again they can do really well. They made the money while the getting was good, now the rest of us suckers can bail them out.

So now we’re talking around a trillion and a half dollars (just for perspective that’s $1,500,000,000,000; equal to 10% of GNP) with the possibility that the number could go higher. To be fair, the government may eventually get some value for its money. Once again, impossible to say how much, real estate values are still going down.

On the other hand, it’s not certain that the bailout will do the trick. It may not solve the fundamental problems in the industry. It may be only one more stopgap measure in a cascade of calamities.

When developing countries experience economic or financial meltdowns, we insist that shock therapy is the only proper response and they should just tough it out. Especially, bailing out the little guy is severely discouraged.

When it came to helping people facing foreclosure Congress could only manage a program designed to come to the aid of but 10% of those in trouble. Now at the insistence of the bushman they are racing to the rescue of the fat cats.

With news of the massive bailout, stock markets soared. Knowing the government was coming to the rescue clearly allowed the investor class to breathe a sigh of relief.

There’s one good that will hopefully come of this fiasco: Neo-con economic ideas – deregulation, unfettered free markets - will be totally discredited. They will be as toxic and repulsive as the obscure financial instruments created in the wake of the deregulation mania of the recent past that are the crux of this crisis.

Even if the multiple bailouts are successful - if that’s the proper term - it’ll still take a decade or more for the US economy to recover from the fiasco. And because the money being thrown at the problem will all be borrowed, it’ll take at least a generation to pay it off. All in all a sordid state of affairs that’ll leave its bitter aftertaste for a long time.

Last word is that Congress may actually demand some input into the bailout plan. Well now, that would be a first: Congress asserting itself on behalf of the American people. Hard to imagine, hard to believe, but miracles do happen so stay tuned.