Contrary to the rumor, spread as gospel, by the majority of economists as well as the majority of elected officials and their darling media commentators this hasn’t been a free market economy for several generations, since FDR in fact.  The question however has become, who do the regulations and the laws benefit.  Since Reagan they have increasingly benefited the rich, and under Bush much more dramatically the super rich.  Meanwhile the country’s public institutions and infrastructure deteriorate.  Now much of its industry is also lost along with decent paying jobs and their accompanying health care.

So saving Fannie Mae and its cousins should not be a continuation of such policies for the rich.  We don’t need taxpayer money to subsidize upper middle-class housing and jumbo second loans.  There are people who ought to be able to own their own home, and some of them are losing theirs.  But affordability remains low in many parts of the country.  Supporting jumbo loan authority and second loan purchases is a waste of taxpayers money.  We have more important priorities.

Some kind of central planning direction is necessary, but it shouldn’t belong to Henry Paulson, and the Fed, recent tools of the new elite class of managers.  We need the establishment of economic direction more democratically or else or else the resurrection of Fannie Mae will not lead to America’s salvation, but further decline for the majority of us.

Clearly Paulson was on the job keeping the stock market from crashing on Monday, July 13, 2008. That was good.  However one of the helpful ideas of the old capitalist system was the idea of bankruptcy.  One of the disadvantages of the centrally planned economies of Eastern Europe and postwar Western Europe was that they spent too much money on politically inspired investments that didn’t work.

One needs to understand that the housing bubble was that kind of investment. Hardly anyone credits Alan Greenspan, the supposed disciple of Ayn Rand the glorified worshipper of individualism, to have been the inheritor of Russian state socialism, but in a way he was with fewer tools.  After the market’s enthusiasm for the computer and the Internet - which was pretty genuine  - led to the .com bubble, Greenspan encouraged the housing bubble.  He lowered interest rates to avoid an economic crash following the stock market crash and he didn’t raise them timely.  He didn’t do his duty to moderate the .com boom, probably because he was too infatuated with the crazy idea that the Internet and the computer would solve everybody’s problems tomorrow.  Like those people who bid up Amazon and Microsoft to the moon and other long forgotten names to dizzying heights.

But before the Japanese markets collapsed in the end of the 1980s Tokyo real estate was valued higher than the entire United States including its productive industry and all its land.  Market enthusiasm runs to excess, periodically. So with few tools at his hand he ignored the warnings that he must have seen as he poured over data which history records he likes to do.  But unlike the propaganda of Wall Street and DC it wasn’t only subprime loans.  It was undocumented loans. It was collateralized debt obligations that pretended to guarantee the value of the poorest loans that were sold to central banks throughout the world.  This is the result of such types like Bernanke or Paulson running our statist economy.

Dr. Stephen Bindman’s book: Pseudo-Capitalism: Socialism for the Rich and the Coming Crisis, is due for publication in August.

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