Essentially the Only One

Why is the current fury about the A.I.G. bonuses only happening now?

Not two years ago when the whole collapse began, or even four years ago when the biggest profits, largest fortunes and riskiest behavior were the rule.

Ironically, many of the people who made the worst decisions and set up the system for its current fall got out a while ago, bonuses and fortunes intact. Yet, despite the clearly obscene level of salaries these folks were making for simply shifting real - and imaginary money - around, very few people seemed concerned at all.

It upset me alright. Nice to see the rest of America catching up.

Better late than never.

In a country where it is still possible to scare people with the words 'socialized' medicine, the government is about to step in with one of the most socialist acts possible - the nationalization of a company.

In this case, two companies, namely Fannie Mae and Freddie Mac, that are behind just about half of the mortgages in this country. This will put the taxpayer on the hook for billions of dollars.

This is being done to prevent the complete collapse of mortgage lending in the U.S.A. A collapse caused by unregulated capitalism and greed at its basest. With all the 'taxpayers' money - in this money the government doesn't actually have, and will simply add to the out-of-control deficit - on the line, we can probably say goodbye to any thought of rational healthcare system as well as expect either future economic collapse or absolutely necessary and considerable tax increases.

Well done, Bush administration!

UPDATE: Nice little addition from the BBC

Together, the two firms own or guarantee about $5.3 trillion worth of home loans - about half the outstanding mortgages in the US.

That is about 25 times as big as the obligations of Northern Rock - which was nationalised by the UK government earlier this year, and twice the size of the UK economy.

UPDATE 2 Nice bit of commentary from Jim Cramer, whom I like because he is a natural optimist. I hope he's right this time.

The wagering on American house-price appreciation has taken place in every venue and, in many cases, with gigantic leverage, magnifying a problem of historic proportions with a financial Armageddon quality we have not seen EVEN IN THE GREAT DEPRESSION. In other words, not since the Great Depression, but including the Great Depression. That's how important it was for houses to appreciate.

....

The only hope to break the chain of despair and turn around the endless declines in home values to the point where you SHOULD walk away from a home with a mortgage larger than the value of your house, is to stop this house-price depreciation.

The Treasury's takeover of Fannie and Freddie can change that because once mortgage paper packaged by the government enterprises is federal government paper, then ANYTHING can be worked out with the borrowers, and the borrowers represent the lions' share of the troubled homeowners in the country who have not already defaulted.

UPDATE 3 Evidence of smoke and mirrors here - how many other major financial companies are in the same boat?

Paulson was prompted to step in after Morgan Stanley, which had been hired to analyze the companies' financials, concluded that Freddie, and to a lesser extent Fannie, relied on accounting maneuvers to meet their capital requirements, according to people with knowledge of the findings. The accounting overstated the value of their actual reserves, the people said.

UPDATE 4 Lovely quote from Floyd Norris

Remarkably, the country that prides itself on being the beacon of free enterprise finds itself with a system that needs government money to finance the most important asset most Americans will ever own.