Privatize the Profits; Socialize the Debts

Letters
The Public Editor
Letters
The Bailout, Free Markets and History
writePost();
new_york_times:http://www.nytimes.com/2008/09/10/opinion/l10fannie.html

Published: September 9, 2008
To the Editor:
Re “The Bailout’s Big Lessons” (editorial, Sept. 9):
Fannie Mae and Freddie Mac are institutions that are too big to fail. Their failure would have dire consequences for financial markets all over the world, especially since many central banks in Asia have kept much of their foreign reserves in the obligations of these two government-chartered corporations under the belief that the United States government would, if necessary, accept these obligations as its own.
If these two institutions’ balance sheets indicated that without anything being done they were on the brink of failure, then the conservatorship proposed by Treasury Secretary Henry M. Paulson Jr. is better than nothing.
But the plan is defective because it permits the companies’ executives to walk away with millions of dollars in compensation and the debt holders of these institutions to apparently avoid any penalty for purchasing obligations that were not legally guaranteed by the United States government.
The Paulson solution represents the result of a political system that since the Reagan era has not only been reluctant to regulate financial institutions but has also actually encouraged free-market behavior that ultimately had to end disastrously.
Both Republican and Democratic administrations since the late 1970s have failed to remember the lessons of the history of the Great Depression and the collapse of unfettered financial markets that followed the Roaring Twenties prosperity in the United States. Those who do not study history are bound to repeat its errors. Paul Davidson
Monroe Township, N.J., Sept. 9, 2008
The writer is the editor of The Journal of Post Keynesian Economics.
•
To the Editor:
The most significant lesson to be learned from the bailout of Fannie Mae and Freddie Mac is that it disproves the idea that free markets can in and of themselves function efficiently without sensible regulations and effective enforcement.
We have lost our way because we have allowed a political system to take root where money and the passion for power have been allowed to compromise the need for honest government and an efficient economic system to meet the ideals that bind us all together.
Leo Montagna
Northport, N.Y., Sept. 9, 2008
•
To the Editor:
Re “Few Stand to Gain on This Bailout, and Many Lose” (Business Day, Sept. 8):
Millions of American homeowners bought their homes judiciously and pay their mortgages responsibly. With the mortgage meltdown, many of these owners have seen the value of their homes, their primary investment, drop considerably, as house after house in neighborhood after neighborhood has been abandoned to foreclosure.
Now these same people, as taxpayers, will assume the mortgage debt of these unlucky homes as our government assumes control of Fannie Mae and Freddie Mac.
That the leaders of the financial institutions that caused this mess have collected, and will collect, millions of dollars in compensation, stock options, bonuses and severance pay is obscene.
That no one has been held accountable for the rampant greed and unscrupulous investment is inexcusable.
Pietro Allar
New York, Sept. 8, 2008
•
To the Editor:
According to “As Crisis Grew, a Few Options Shrank to One” (front page, Sept. 8), the government acted because “if Freddie’s and Fannie’s problems worsened, a crisis of confidence could spread through the worldwide financial system, deepening the difficulties in the housing market and further weakening the economy — in the midst of a hard-fought election campaign.”
Notwithstanding the panicked improvisations of the Treasury Department and the Federal Reserve in recent months, the domestic and global economies are already in precisely such a crisis, brought on by irresponsible “creative” financing, securitization of questionable debt, and the passing of risk through financial instruments and obligations that are not even understood by the people who own them.
In the final analysis, this crisis has been fueled by the same combination of greed, dishonesty, willful blindness and wishful thinking that has generated every disaster of capitalism from the Dutch tulip collapse through the Great Depression, the Enron and WorldCom scandals, and the dot-com bust.
John S. Koppel
Bethesda, Md., Sept. 8, 2008
To the Editor:
Re “Mortgage Giants Taken Over by U.S.: A Costly Bailout” (front page, Sept. 8):
To limit the cost to taxpayers, the government should form an entity similar to the Resolution Trust Corporation, which liquidated the assets of the failed S.&L.’s during the 1990s. This government-owned agency would hold the assets of Freddie Mac and Fannie Mae until they could be valued based on the quality of the underlying mortgages.
Unless this happens, the sell-off will be premature, and vulture-fund speculators will buy the undervalued assets.
Because of market illiquidity and the inability to price the portfolios, the assets of the government-sponsored entities should be held until the mortgage-backed securities market returns to some semblance of normality. That will minimize the cost to taxpayers.
Jerry Chautin
Atlanta, Sept. 8, 2008
The writer is a retired mortgage banker.
•
To the Editor:
Housing is a basic need for all Americans, and now the United States government has rescued the financiers behind the housing industry.
Adequate medical care is also a basic need for all Americans.
Perhaps now there can be a real discussion of how the federal government can assure that everyone will have access to good medical care without invoking the bogyman of socialism.
Martin Magid
Bloomfield Hills, Mich., Sept. 8, 2008
•
To the Editor:
With the bailout of Freddie Mac and Fannie Mae, the Reagan revolution has at last realized the robber barons’ dream: privatize the profits and socialize the debt. Nicely done, fellas.
Candida Pugh
Oakland, Calif., Sept. 8, 2008