What the Nationalization of Freddie and Fannie Shows Us

Hank Paulson, the US treasury secretary, is a “strong believer in the free markets” writes Joanna Chung and Krishna Guha in the Financial Times. “But as the financial crisis has unfolded” the authors add, “..his free market instincts have been trumped by his Wall Street pragmatism and aggressive desire to solve problems.” *

The “problem” that Mr. Paulson’s Wall Street pragmatism is solving is the crisis of the capitalist economy and the interests of the class that governs it. Mr. Paulson entered in to public service, acting as a political representative of this class, after leaving his position as chief executive at Goldman Sachs, a very successful money-lending outfit where he did quite well for himself. According to Forbes Magazine His compensation package, was $37 million in 2005 with a net worth estimated at over $700 million. Robert Rubin, another Goldman Sachs alumni also entered government in order to assist them in their feeding at the public trough. Caspar Weinberger, George Schultz; they all do it.

The bold step that Mr. Paulson has taken that will hopefully end the strike of capital, is the nationalization of the debt of Fannie Mae and Freddie Mac, the two huge mortgage companies. The term “nationalization” injects such horror in to the hearts of the free market worshipers that they refrain from using it. In the US, they are just as fearful of the term, “public ownership” as they recognize that this undermines their propaganda about the superiority of the market and will get workers to thinking about other sectors of society that could do with a dose of public funds like education and health care; surely we could do with some aggression and pragmatism there.

With nationalization and public ownership out, the term Paulson uses for this US taxpayer bailout is “conservatorship”. My dictionary here describes a conservator as, “A person or institution responsible for protecting the interests of an incompetent.” So the US taxpayer, broke, in debt, overworked and stressed out, will be stepping in to protect an “incompetent” system and those like Paulson who champion it; indeed, will kill to protect it. We don’t get to vote on this of course.

They have nationalized the debt of their incompetents before. The Savings and Loan collapse of the 80’s and 90’s cost the US taxpayer billions of dollars. The big business politicians in the Democratic and Republican Parties first passed laws that enabled their crooked friends to profit off the savings of primarily older Americans and when the scheme collapsed they nationalized the debt of these institutions by taking them in to public ownership. Then they formed a government agency to go through these institutions, throw out ones that were beyond repair and sold the rest at bargain basement prices back to the same crooks that caused the mess in the first place.

As a direct result of the debt bubble and the capital strike that followed it, Bear Stearns, one of the money lending outfits, collapsed. Most people are aware that BS was bought out by another huge group of moneylenders, JP Morgan. But JP Morgan did this after being promised a $29 billion line of credit from the US taxpayer.

But the nationalization of Freddie Mac and Fannie Mae is a whole different ball game and is being reported as the world’s biggest bailout. The two companies guarantee almost two thirds of US mortgages, more than $5 trillion worth (Five thousand billion). Capitalism is a global system and the British working class was forced to bail out one of that country’s banks that collapsed due to the US housing crisis. Northern Rock, a relatively small bank in Northern England was nationalized at a cost to the taxpayer of 100 billion British pounds. The taking on to the public balance sheet the debt of Fannie Mae and Freddie Mac is 25 times larger.

So the big business press is championing MR. Paulson’s “pragmatism” and his “aggressive desire to solve problems”. He is the hero of the day. Not because he showed how to use the market to save the system, but how he took the bold step of going against his “free market instincts” putting the long-term security of the system ahead of them; he is using the taxpaying public to save the market. Paulson has promised the speculators that the US taxpayer will immediately inject $100 billion each in to the companies and lend money to them directly through 2009. So why can’t this capital be made available cheaply to the consumer directly? It can of course but that’s not freedom.

The hope is that this will bring down interest rates and make money a little easier to borrow. It is an attempt to coax the owners of capital to not be so tight-fisted with it, or to not charge so much for the use of it (interest). The finance capitalists are very happy that the taxpayer is coming to the rescue and the markets responded accordingly. Both candidates for the US presidency support this “socialistic” measure. The liberal Barak Obama who isn’t liberal enough to call for the elimination of the parasitic insurance industry from the health care business or for the “conservatorship” of health care and the pharmaceutical industry says, "Given the substantial role that Fannie Mae and Freddie Mac play in our housing system, I believe that some form of intervention is necessary to prevent a larger and deeper crisis throughout our entire economy,"
McCain, comments that, "The long-term reforms are to scale down Fannie and Freddie so their size is no longer a threat. And then privatize them. Get them off the taxpayer's books entirely," This is the S&L solution repeated.

This is not surprising as both these millionaires are candidates of capitalist parties and both agree that this socialistic measure is needed to ensure the security of capitalist robbery in the long term; not that they will admit it in this way. It is interesting to read in my local paper today the terms the mass media use to describe the victims of this process. “…the housing boom has turned in to a bust” comments the San Francisco Chronicle, “…even top notch borrowers have fallen behind on their mortgages or defaulted altogether. **

A typical “top notch” borrower is the average American worker with three jobs or, if one of the lucky ones, a family with one decent paying Union job supplemented by another lower income that is high enough to pay someone to look after the kids, often someone less fortunate who, by looking after someone else’s children is forced to deny her own children time she would rather give to them. But that’s what you have to do if you want to own a home and be a “top notch borrower.” This is “freedom” and if freedom is too stressful you’re free to buy Paxil. The American Dream is just that, a dream for most, especially the young. It is said that if you want the American Dream, go to Norway.

The fact that they use the terms they do to describe what is actually the taking in to public ownership of a huge sector of the economy reveals the underlying fear they have of the working class and the potential for increased hostility to the market and its daily misery.
This move must not be seen as their doubts about their own system; it is a temporary step to recovery. But we’re not stupid, if Paulson’s “pragmatism” and “aggressive desire to solve problems” by the government taking over what we are constantly told can only be a role of private enterprise surely it can work anywhere? Transportation, education, health care; these issues can all be dealt with though, er, conservatorship.

Whenever the idea of a national health plan or any other public control of major sectors of the economy is raised, some of the best workers will echo the argument put forward by the big business press that it won’t work, that it will “lead to bureaucracy” or compared to the vibrant private sector it is “wasteful, inefficient, tends to corruption” etc.

Public ownership, even in a capitalist economy, is a step forward as it weakens the argument that the market is god and only private enterprise works. They nationalize something to protect their profit taking and theft. But the lesson we need to draw is that if they can nationalize the housing market we can nationalize anything. It brings the idea more to the forefront of our consciousness that real public ownership, where workers own the commanding heights of the economy as well as the production and distribution of products produced is possible.

The heads of organized Labor should be using this failure of the market to discredit the capitalist class and their rotten system. The speculators have had a sumptuous feast that has been interrupted by excess. Retreating, they have gone on a capital strike. But they have no more right to own the surplus created by Labor than they do the factories and workplaces they use to extract that surplus.

The Labor leaders should be using this present crisis and big business’ response to it through nationalization to wage a war against the private sector in the workplaces while breaking from them politically by abandoning their Democratic Party and building a mass party of the working class an alternative.

But they will not do this, they are wedded to the Democrats and the market economy and they are terrified of the working class and its potential to change society. For them, capitalism is the only system of production that can work; it is the only way society can be organized. They have adopted fully the capitalist world-view. For them, to mobilize the working class on any issue is dangerous. Where will it lead? Surely it will lead to chaos as the working class demands what we see the system can afford but the capitalist class denies us.

There is a slight change in the mood among workers. No matter which party wins the next US election while there may be minor concessions, the attacks will continue and people’s living standards will continue to fall. There will be increased opportunity for the hundreds of thousands of activists, anti-capitalists and others that are involved in one way or another in social struggle. The youth will not be contained forever, nor will the 14 million members of organized Labor under the weight of a stifling bureaucracy. The old methods of struggle that brought us what we have today will re-emerge to replace the endless passive protests and the army of professional protestors that attend them. Direct action, workplace and school occupations, wildcat strikes and genuine militant Union oppositions that challenge openly the role and program of the present bureaucracy will not be unaffected by the struggles in society in general and will emerge as a genuine threat to the status quo.

When workers have raised the idea of nationalizing the likes of auto or steel or communications, the red scare has been the answer; that’s communism is the war cry. There’s no accusations of communism against Henry Paulson for nationalizing the debt of the housing giants. The idea of a $15 dollar minimum wage, free education and health care, decent housing and jobs for all, these are easily affordable, society is not broke; we just don’t own the resources that we create. We must demand what we need, not what Republicans, Democrats or Labor leaders tell us is “realistic”; society can afford it.

If it’s OK to nationalize the debt of the crisis ridden mortgage industry, it’s Ok to take in to public ownership the commanding heights of the economy under workers control and management.


• Legacy of Intervention FT 9-08-08
** Feds take control of mortgage giants: SF Chronicle 9-08-08