The Reminder is making its archives back to 2003 available on our website. Please note that, due to technical limitations, archive articles are presented without the usual formatting.
After George W. Bush nationalized the two giants of the US mortgage market, Freddie Mac and Fannie Mae, earlier this month, Anatole Kaletsky wrote in The Times of London that Òthe most capitalist administration ever, in the worldÕs most capitalist country, (has) decided to wipe out the private owners of its biggest and most important financial companies and replace them with state-appointed bureaucrats.Ó Wikipedia defines ÒnationalizationÓ as Òthe act of taking an industry or assets into the public ownership of a national government . . . Nationalization may occur with or without compensation to the former owners. If it takes place without compensation it is a case of expropriation.Ó Well, this was expropriation. When the US investment bank Bear Stearns went belly up in March, the shareholders used their political influence to get the price of the buyout raised from the originally agreed $2 per share to $10 per share. By April, however, it was known that the US Federal Reserve Bank was talking to the Scandinavian authorities, who had survived a rather similar crisis in 1991-93 by nationalizing their banks without compensation for shareholders. And that is essentially what happened with Freddie Mac and Fannie Mae, whose combined liabilities of $5.5 trillion were equivalent to about two-thirds of the existing US national debt. The shareholders got nothing. In its desperate attempt to keep Freddie Mac and Fannie Mae afloat over the previous six months, the US Treasury had encouraged investors to pump an extra $20 billion into them. As the situation worsened and the likelihood of a federal nationalization without compensation loomed, Yu Yongding, former advisor to ChinaÕs central bank, warned: ÒIf the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately...it is the end of the current international financial system.Ó That is what actually came to pass this month, although the consequences will take years to play out fully. Later came the effective nationalization of American International Group (AIG), which made the US government the worldÕs largest insurance company. The proposal by the US Treasury to spend $600 billion of taxpayersÕ money buying up the worst of the sub-prime mortgages only emphasizes how far we have travelled from the triumphalism of the free-marketeers in just a few months. Just as China has developed a Òsocialist economy with Chinese characteristics,Ó the US is getting a socialist economy with American characteristics. The panicky flight from free-market orthodoxy in the United States is bound to fuel a revival of government intervention and welfare-state policies in the rest of the world. In the United States itself, however, they are likely to hang the wrong culprit in the end. It was the ideologically driven deregulation of banks and markets by the Bush administration, encouraging wild speculation and the proliferation of murky financial instruments, that made this crisis possible. When one set of Bush-appointed regulators brought garden shears to a press conference to show their dedication to cutting the Òred tapeÓ that allegedly kept banks from realizing the full potential of unregulated financial markets, a rival Bush appointee, James Gilleran, head of the Office of Thrift Supervision, brought a chainsaw to his photo-op. So will the Republicans be punished for their willful fiscal irresponsibility? Not if Barack Obama wins the presidency, which seems the likely outcome of the November election. American voters wonÕt remember who actually caused the financial crisis that impoverished them. They will end up blaming the party in power, the one that actually has to try to clear up the mess. The Democrats, in other words.
