Thursday, July 31, 2008

I'd run your company into the ground for half that price

So, I guess the "doomsday scenario" for Fannie and Freddie has failed to materialize... yet. Instead of being on the hook for upwards of one trillion dollars, taxpayers will bail out the two GSEs -- for now -- at the low low price of $25 Billion. This "temporary lifeline" will enable Fannie and Freddie to continue to afford to pay their CEOs' yearly salaries of $12.2 Million and $19.8 Million, respectively.

I mentioned the term "GSEs". This stands for "Government Sponsored Entities". Which means our government is spending $25 Billion (at least) to sponsor:

1. profligate, out of control executive salaries;

2. being paid to managers who are utterly incompetent;

3. so that the companies they run can enable and encourage other companies (banks, mortgage brokers, and Wall Street firms) to loan money to people who they (banks, etc) are reasonably sure cannot repay it;

4. so that while they (banks, etc) are reaping huge profits from making these loans;

5. they (the GSEs) and their shareholders may reap huge profits in return for enabling them;

6. and then when it becomes obvious to everyone else (besides the lenders, who knew it all along) that the borrowers can't pay;

7. then they (the banks and the GSEs and their shareholders) can get huge infusions of taxpayer money in order to avoid any downside to their risky (and probably fraudulent) behavior.

So that's pretty much it. Lenders, GSEs, and their shareholders engage in highly risky financial behavior (i.e., speculation; i.e., gambling). To the extent that their bets pay off, they enjoy all the upside, and to the extent that their bets are raked off the table into that neat round hole, they don't suffer any of the downside. Said downside, magically, becoming the responsibility of you, the taxpayer.

And congress wonders why its approval rating hovers in the single digits.

2 comments:

Eric Ogunbase said...

$25 Billion is just the tip of the iceberg. Anytime the government takes a little bit, it just sets a precedent which allows them to later open the floodgates. Comrade Obama is going to make it worse when he signs the bill that completely bails out the irresponsible people who took on loans they couldn't afford by lying on loan apps.

Gleemonex said...

You had me in that first sentence, Eric, but then you lost me.

Anyway -- HHL, remember when Republicans were allegedly about "small government" and suchlike? yeahh.