Take a Load Off Fannie: Bailout or Nationalization for the Mortgage Giants?

The U.S. Treasury recently sought and was granted an unlimited credit line for Fannie Mae and Freddie Mac, along with the authority to buy their stock, effectively nationalizing them; but this could mean $5 trillion more in liabilities for the federal government, causing it to lose its own triple-A rating. What to do? There is a solution that would salvage the mortgage giants and cost the taxpayers nothing . . .

Read more —

http://www.webofdebt.com/articles/take_a_load_off_fannie.php

10 Responses

  1. “Put Fannie and Freddie into the Social Security Trust …and the next big investment bank.’

  2. Wonderfully informative article, Ellen. I will be sure to link to it on my Risk Averse Alert blog, so readers can see there is a growing tide of free-thinkers with a sense of American history. This seems a rare commodity in our contemporary financial world. You, however, are spot on with your [unspoken] sense about how the Great American Experiment continues to be a living, breathing thing requiring a well-informed citizenry. Your intellect shines through your diffident style.

    One thought I had about banks holding a boatload of FNM and FRE preferred stock whose collapse has negatively impacted reserve capital.

    Could this have been done purposefully? And might this problem remaining unresolved facilitate a banking system consolidation … characterized by the raiding of assets for pennies on the dollar … a la Bear Stearns?

  3. Thanks Tom! That’s an interesting point about taking down the unwary banks. Note that the pension funds are also huge holders of Fannie/Freddie stock. No accommodation is being made for them, but it IS being made for the lenders (largely foreign central banks). The foreign central banks can most afford it and, as noted by Roubini, they would only take a 5% haircut anyway, since their interest is secured by viable mortgages. The pension funds and banks with shares will get wiped out. When did we vote on these decisions?

  4. Destruction of pension funds is a key milestone on the successor to the Contract on America, as stated by Grover Nordquist. The Nation magazine ran this statement of his back in 2002. It appears that the reactionaries are ahead of schedule on pension fund destruction, although privatization of Social Security has hit a snag. Can we not solve the pension fund problem by reliance upon real greenbacks and the Pennsylvania Land Office route?

    I read the first edition of “Web of Debt.” How does the people-owned Bank of North Dakota rate as a model for a way out? As you intimated, would a revival of the Postal Savings Bank help out as well?

    Peter N., Minneapolis

  5. Whoa! I just looked that up —

    http://www.banknd.nd.gov/about.jsp

    Its capital base consists of the funds of the State. Does it make fractional reserve loans from its capital like commercial banks? That would be a first! I’d like to hear a lot more about that. Thanks!

  6. Ellen,

    Here’s what you wrote in the above article:

    In the first half of the 18th century, the province of Pennsylvania completely funded its government without taxes or debt, through a publicly-owned bank that issued paper currency and lent it to farmers. The bank did not have to borrow capital before it made loans; it just created the currency on a printing press. The money was lent rather than spent into the economy…

    You did not state how the interest money was created.

  7. In other articles, you did mention that the colony of Pennsylvania did create interest money and spent into circulation via public projects. That money returned to the government as interest.

  8. Hi, yes, I explained that in earlier articles and was trying not to be tediously redundant, but I guess I should include it every time. The provincial government issued and spent some into the economy. Say, you start with $105 in colonial scrip. You lend $100 at 5% and spend the other $5 on roads, bridges, administration, etc. $105 circulates in the economy and comes back as principal and interest on the loan. Then you lend and spend the same $105 all over again.

  9. Hello, Ellen!
    I’m trying to understand what’s been going on with the world markets during the past several days, and it would be great to hear your opinion, if you have the time to share it.

    I’m hesitant to trust other sources, as they’re mostly just “complex-sounding economics gibberish”, but it seems the crisis predicted in the Money Masters is at hand on a worldwide scale. With the russian RTSI taking a dive, one can assume that there is, behind a smokescreen of the subprime troubles, a vast invisible force dragging down the global economy.

    Now, the mechanics of creating a depression by reducing the amount of money in the economy (I refer here to the central bank selling bonds for high-powered money) have been covered in Money Masters, and the mechanics of creating hyperinflations were comprehensively exposed in the Web of Debt; as to the techniques that make a market index go down, I am pretty clueless.

    It can be that just as the Plunge Protection Team can make the market look healthier by buying index futures, an imaginary PPT’s counterpart could make it look less healthy by selling index futures. With enough money and media control, it might be possible to simultaneously manipulate in this way all the major indices on the planet, emulating a world crisis. There must in this scenario be a way to reap profits, perhaps similar to how the market makers end up with owning everything after creating a hyperinflation.

    Now, it is likely that I have no real idea of what’s going on and my speculations do look ridiculous in the eyes of real economists. Please dispel the darkness of my ignorance and clarify this question.

  10. Ellen Brown, on September 8th, 2008 at 5:05 am Said:

    Whoa! I just looked that up –

    http://www.banknd.nd.gov/about.jsp

    Its capital base consists of the funds of the State. Does it make fractional reserve loans from its capital like commercial banks? That would be a first! I’d like to hear a lot more about that. Thanks!
    _____________

    Hi Ellen, Thanks for letting us all hear more about that! This latest OpEd Article is choice. If every state did this we’d be out of our so-called economic crisis in months, or at most a year or so. It makes SO MUCH difference whether the interest is going to a public purse or international private banking coffers.

    http://www.opednews.com/articles/PLAYING-THE-BANKING-GAME–by-Ellen-Brown-090302-302.html

    Well worth the click, and the minute or two it takes to read it!

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