United We Lend, Divided We Fall

Raw Deal...Can We Get a Neo-New Deal, Please?
This is a picture of FDR giving a radio speech from the White House on March 12, 1933. The reason he is giving a radio speech is because he is trying to communicate to the general public--those that don't do more than use a bank to cash a check and store savings--why the banks have failed, and what will happen next. He looks worried, doesn't he?

Flash forward to 2008 and I am reading the August 2nd Edition of The Economist, a magazine I sometimes let go by the boards due to its definitive Euro slant, which sometimes seems particularly critical of the US....(Never mind the other article about the Beijing Olympics, "Welcome to a (rather dour) party," with a half-page picture of a Chinese Cop whose hand is up, both in protest of our journalist and to block his face.)...But here is a looming consideration brought on by one little article, that resonates with my previous concern about the current bank woes (see this previous post) which is: if the government intervenes, when will they stop?

Fan, Fred, Fed: Who Invited these guys?
The article--more of a brief--is called "Hair of the Dog," and raises an excellent point about the dire need to change the system--no just bail it out. This quick article recognizes what no taxpayer wants to admit:

"If Fannie and Freddie are too important to be allowed to collapse, and the American government is really responsible for their debts, then they should be nationalised. The current arrangement allows managers and shareholders to take all the profits and leave the losses to the taxpayer."


Amazing. Hindsight is always 20-20, especially about all the bad decisions we collectively made about those pesky SIVs (structured investment vehicles) that helped trigger the lending crunch. But now, we're looking directly at a system, Fannie and Freddie and how it buys mortgages, that has a self-destructive unit built into itself. Leaving the already underpaid and stressed taxpayer to foot those bills is problematic if the government technically owns them.

So then, what if we took the articles suggestion and nationalized the system? Wouldn't it be inevitable that people may complain about a nationalized mortgage clearinghouse because it begins to look, um, sort of collective and communal and, well, when the government is in charge, this is called communism.

Being that the average age of a Congress member is 60 years (according to msnbc.com), I can only hope that they have had enough history lessons (or lived through enough) to make our current economy, in its new age and with its new challenges, a functioning free-enterprise system once again. --Even if it means adopting and evolving what might, at first blush, look like a communist idea, we need to consider new approaches to old problems, regardless of any previous label those approaches have had.