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Comrades Bush,
Paulson and Bernanke Welcome You to the USSRA
(United Socialist State Republic of America)
By Nouriel Roubini
09/09/08 "Roubini
Global Economics" -- -
The now inevitable nationalization of Fannie and Freddie is the
most radical regime change in global economic and financial
affairs in decades. For the last twenty years after the collapse
of the USSR, the fall of the Iron Curtain and the economic
reforms in China and other emerging market economies the world
economy has moved away from state ownership of the economy and
towards privatization of previously stated owned enterprises.
This trends was aggressively supported the United States that
preached right and left the benefits of free markets and free
private enterprise.
Today instead the US has performed the greatest nationalization
in the history of humanity. By nationalizing Fannie and Freddie
the US has increased its public assets by almost $6 trillion and
has increased its public debt/liabilities by another $6
trillion. The US has also turned itself into the largest
government-owned hedge fund in the world: by injecting a likely
$200 billion of capital into Fannie and Freddie and taking on
almost $6 trillion of liabilities of such GSEs the US has also
undertaken the biggest and most levered LBO (“leveraged
buy-out”) in human history that has a debt to equity ratio of 30
($6,000 billion of debt against $200 billion of equity).
So now Comrades Bush, Paulson and Bernanke (as originally
nicknamed by Willem Buiter) have now turned the USA into the
USSRA (the United Socialist State Republic of America).
Socialism is indeed alive and well in America; but this is
socialism for the rich, the well connected and Wall Street. A
socialism where profits are privatized and losses are socialized
with the US tax-payer being charged the bill of $300 billion.
This biggest bailout and nationalization in human history comes
from the most fanatically and ideologically zealot free-market
laissez-faire administration in US history. These are the folks
who for years spewed the rhetoric of free markets and cutting
down government intervention in economic affairs. But they were
so fanatically ideological about free markets that they did not
realize that financial and other markets without proper rules,
supervision and regulation are like a jungle where greed –
untempered by fear of loss or of punishment – leads to credit
bubbles and asset bubbles and manias and eventual bust and
panics.
The ideologue “regulators” who literally held a chain saw at a
public event to smash “unnecessary regulations” are now
communists nationalizing private firms and socializing their
losses: 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, and a whole range of other
executive and legislative actions (including the recent bill to
provide a public guarantee to mortgage for banks willing to
reduce their face value).
This is the biggest and most socialist government intervention
in economic affairs since the formation of the Soviet Union and
Communist China. So foreign investors are now welcome to the
USSRA (the United Socialist State Republic of America) where
they can earn fat spreads relative to Treasuries on agency debt
and never face any credit risks (not even the subordinated debt
holders who made a fortune yesterday as those claims were also
made whole).
Like scores of evangelists and hypocrites and moralists who spew
and praise family values and pretend to be holier than thou and
are then regularly caught cheating or cross dressing or found to
be perverts these Bush hypocrites who spewed for years the glory
of unfettered wild west laissez faire jungle capitalism (and
never believed in any sensible and appropriate regulation and
supervision of financial markets) allowed the biggest debt
bubble ever to fester without any control, have caused the
biggest financial crisis since the Great Depression and are now
forced to perform the biggest government intervention and
nationalizations in the recent history of humanity, all for the
benefit of the rich and the well connected. So Comrades Bush and
Paulson and Bernanke will rightly pass to the history books as a
troika of Bolsheviks who turned the USA into the USSRA. Fanatic
zealots of any religion are always pests that cause havoc and
destruction with their inflexible fanaticism; but they usually
don’t run the biggest economy in the world. But these laissez
faire voodoo-economics zealots in charge of the USA have now
caused the biggest financial crisis since the Great Depression
and the nastiest economic crisis in decades. So let them be
shamed in public for their hypocrisy and zealotry that has
caused so much financial and economic damage.
Copyright © 2008
Roubini Global Economics
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