Monday, June 14, 2010

Americans Being Kicked in the Fannie Once Again reports on the apologists for fiscal insanity surrounding the Fannie/Freddie bailouts in Fannie-Freddie Fix at $160 Billion With $1 Trillion Worst Case:

“Republicans and Democrats love putting Americans in houses, and there’s no getting around that,” Holtz-Eakin said.

‘Safest Place’

With no solution in sight, the companies may need billions of dollars from the Treasury Department each quarter. The alternative -- cutting the federal lifeline and letting the companies default on their debts -- would produce global economic tremors akin to the U.S. decision to go off the gold standard in the 1930s, said Robert J. Shiller, a professor of economics at Yale University in New Haven, Connecticut, who helped create the S&P/Case-Shiller indexes of property values.

“People all over the world think, ‘Where is the safest place I could possibly put my money?’ and that’s the U.S.,” Shiller said in an interview. “We can’t let Fannie and Freddie go. We have to stand up for them.”

To Dr. Holtz-Eakin, my response is that there is a way around it. It's called leadership and avoidance of money-printing. To Dr. Shiller, I would point out that any investor who is not yet aware that Fannie/Freddie obligations are not full faith and credit obligations of the Federal Government deserve losses. No, taxpayers don't have to "stand up" for these badly-run behemoths.

It's all about the inflation game (or, anti-deflation, which eventually amounts to something very similar though probably not identical). Dr. Shiller, who actually praises the money illusion in the book he co-authored titled "Animal Spirits", believes that rising prices and rising wages are good things for psychological reasons. So the U. S. government (with the Fed's assistance) writes off/monetizes the losses, thus eradicating the debt and converting debt-based finance into helicoptering money onto the people.

Until the debt is canceled or monetized, it is not inflationary. By "standing up" for Fannie and Freddie, bad debts all through the chain can be cancelled or written down, but the credit money issued by banks, such as to mortgagees, has been spent, and more is on the way to justify current prices.

It is a cynical game in which Republicrats and Demopublicans work hand in glove with the financial/building interests to put people into houses they cannot afford, that produce no foreign exchange revenue, that cost money to maintain, and that are backed by the misperception that the U. S. is a safe place to invest. No matter that over the past 25 years, the U. S. may have had more bank failures than any country anywhere, that the U. S. is the obvious home of global Ponzi finance, and that the housing scheme is at the root of it all.

What makes the U. S. "safe"? Broad oceans, militarily unaggressive neighbors, and its global military presence. Fundamentally, the Fannie/Freddie/AIG/Lehman month late August to beginning of October 2008 has never had official explanation or serious action at reform.

With Establishment stalwarts such as Drs. Holtz-Eakin and Shiller banging the gong loudly for ongoing Fannie/Freddie bailouts, you can expect more of the same-old same-old going forward.

Copyright (C) Long Lake LLC 2010

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