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Mother of all Bubbles…”The Era of Big Government…”

October 6, 2008 Leave a comment

What has been little noted in all this discussion about the financial crisis is effect it will have on the size of the United States government – apart from the doubling of the national debt.

According to data I can find, for the year 2007, Fannie Mae had revenue of 45 billion dollars. Freddie Mac had revenue of 43 billion.

According to USA Today;

The two companies hold some of the loans they buy and securities they bundle in their investment portfolios. Fannie Mae said its portfolio was $736.9 billion in May, highest since August 2005, while Freddie Mac said its portfolio was a record $770.4 billion in May.

Including investments and guarantees, Fannie Mae’s total book of business topped $3 trillion for the first time in May, twice its size at the beginning of 2002.

With Freddie Mac’s $2.2 trillion in investments and guarantees, the two have a hand in nearly half of the entire U.S. mortgage market.

It would seem, as of May, 2008, the United States government is the single largest holder of home mortgage debt on the planet; with a portfolio of $1.5 trillion, and combined investments and guarantees of $5.2 trillion.

Taken by itself, this would likely make Washington the largest business concern on the planet Earth, the monopoly player in the U.S. mortgage debt industry, and, the market maker for all home mortgage loans.

But, there is more:

AIG, of which Washington is now proud owner of 80 percent equity, had revenue of 110 billion. According to one site:

American International Group, Inc.  provides insurance and financial services in both the United States and abroad. One of the largest companies in the world by assets and employee size, AIG was a component of the Dow Jones Industrial Average from April 1, 2004 to September 22, 2008. Through its subsidiaries, its holdings can be divided into four sections: General Insurance, Life Insurance and Retirement Services, Financial Services, and Asset Management.

AIG is the world’s largest aircraft leasing company. It has responsibility for over $60 billion in credit default swaps. AIG is already the largest individual operator inlife insurance world wide, and has a large presence in “writing all lines of commercial property and casualty insurance, as well as various personal lines domestically and abroad.”

All totaled, according to Forbes.com:

AIG, with 103,000 employees and more than $1 trillion of assets, is more than an insurance company. It is arguably the biggest player in the financial services industry; a collapse, many fear, could be catastrophic.

The total revenues of these three companies are, therefore, approximately $200 billion, with total assets of more than $6.2 trillion.

On January 27, 1996, President William Clinton delivered his address to the nation declaring in part:

But we also face stiff challenges. Challenges we must meet and meet together if we are to preserve the American dream for all Americans, maintain America’s leadership for peace and freedom, and continue to come together around our basic values.

These are the seven challenges I set forth Tuesday night — to strengthen our families, to renew our schools and expand educational opportunity, to help every American who’s willing to work for it achieve economic security, to take our streets back from crime, to protect our environment, to reinvent our government so that it serves better and costs less, and to keep America the leading force for peace and freedom throughout the world.

We will meet these challenges, not through big government. The era of big government is over, but we can’t go back to a time when our citizens were just left to fend for themselves.

“The era of big government is over,” said Mr. Clinton, still stinging from the battle with the Republican majority in Congress, and desperate to reposition his administration ahead of the November elections.

Twelve years later, how completely wrong he turned out to be still hasn’t dawned on this nation.

Get set for the Mother of all Bubbles…

October 6, 2008 Leave a comment

The collapse of the Congressional opposition on Friday signaled the likely dissolution of the Party of Wall Street, and the victory of the Party of Washington. (27 Republicans and 32 Democrats were cajoled or bribed to switch sides.)

With the passage of the Wall Street bailout, the Street has been effectively annexed by Washington – a conclusion seemingly confirmed by the German government’s decision to guarantee the deposits in its own banks to stem the financial collapse unfolding in the world market, and similar moves by the governments of Ireland, Iceland, Belgium, The Netherlands, Britain, Denmark, and Luxembourg.

Wall Street imagined itself an independent force on the American landscape – pressing for greater and greater autonomy and deregulation, and growing in influence within the machinery of state to such extent even the Party of Washington began bending to its will.

Wall Street fatuously promised the magic elixir of non-state economic growth and rising living standards, even as it reduced the great mass of American families to debtor status not unlike that of sharecroppers of the post-Civil War to mid-20th Century – encouraging debt to extend the abysmally long working day far beyond that which was necessary to satisfy the requirements of modern production.

As one writer, Tom Walker of the Shorter Working Time listserv stated to us:

What is debt? In banking terms, debt is a withdrawal from an account in anticipation of future deposits. Debt is allowing me to take money out before I put it in. The banking system allows its customers, as a whole, to take more money out than they collectively have on deposit. This is called monetary creation. The core idea of economic growth has been to stimulate growth through a controlled expansion of debt (fiscal policy) and the money supply (monetarism).

Well, Benjamin Franklin said, “Time is money.” That is to say, disposable time is something valuable in itself, which potentially can be converted into cold, hard cash if so desired. If one can stimulate economic growth by withdrawing funds before you deposit them, then who is to say that you can’t do it by systematically withdrawing hours of work? “Oh, but it sounds rather preposterous.” Perhaps, except that the debt model of economic growth sounds no less preposterous and yet it is accepted uncomprehendingly by people who would be horrified by the notion that working less might actually be a better option than owing more.

That is the paradox. The same people (economists and those who believe them) who refuse to even entertain the notion that shorter working time could create jobs, accept that expanding debt will create jobs without caring whether they understand why. But I repeat myself. And to tell the truth, it is necessary to repeat this paradox many, many times until it becomes plain what kind of an absurdity we are dealing with here.

With Wall Street effectively annexed by Washington, the Party of Wall Street now finds the interests of it most important constituency virtually identical with the former. Goldman Sachs’s Masters of the Universe, have become highly paid government bureaucrats simply managing Washington’s growing portfolio of dependent entities.

We will continue this theme.