The Death of the Free Market
mtippett | September 17, 2008 at 08:38 amby
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Nouriel Roubini challenges the US government's response to the growing financial crisis accusing the Feds of reverting to a soviet strategy of effectively nationalizing major banks.
Last week we argued that, with the nationalization of Fannie and Freddie, comrades Bush, Paulson and Bernanke had started transforming the USA into the USSRA (United Socialist State Republic of America). This transformation of the USA into a country where there is socialism for the rich, the well connected and Wall Street (i.e. where profits are privatized and losses are socialized) continues today with the nationalization of AIG.
But Roubini isn't some kind of quack. He's a hugely influential and respected economics professor at NYU and has been featured in most major media as someone who has anticipated the current financial crisis. His analysis is not without merit. He provides a detailed list of things the government has done to interfere with the market including:
the bailout of the Bear Stearns creditors; the bailout of Fannie and Freddie; the use of the Fed balance sheet (hundreds of billions of safe US Treasuries swapped for junk toxic illiquid private securities); the use of the other GSEs (the Federal Home Loan Bank system) to provide hundreds of billions of dollars of “liquidity” to distressed, illiquid and insolvent mortgage lenders; the use of the SEC to manipulate the stock market (restrictions on short sales); the use of the US Treasury to manipulate the mortgage market (Treasury will now for the first time outright buy agency MBS to manipulate and prop up this market); the creation of a whole host of new bailout facilities (TAF, TSLF, PDCF) to prop and rescue banks and, for the first time since the Great Depression, to bail out non-bank financial institutions; the recent extension of the collateral available for the TSLF and PDCF facilities to a much wider range of toxic securities including equities and thus allowing the Fed to effectively manipulate even the stock market; and a whole range of other executive and legislative actions (including the recent bill to provide a public guarantee to mortgages for banks willing to reduce their face value).
One has to wonder what impact these actions will have on the US's free trade agreements like NAFTA. How can Canadian and Mexican banks be expected to compete on a level playing field when this is the environment? This could get even more interesting.
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