It was too nice in San Francisco this weekend to go to the movies. Next weekend, though, I will certainly go see Oliver Stone’s revisiting of the accidental hero Gordon Gekko in Wall Street 2: Greed Never Sleeps. In light of recent macroeconomic events, I expect a healthy serving of Stone’s liberal agenda. Though I hate to pre-judge, I’m certain Charlie Sheen’s Bud Fox will eternally outshine any supporting performance that the petulant Shia LaBeouf can muster.
Fictional accounts of the global financial morass aside, the U.S. government’s bailout of itself goes largely unnoticed. Liberal media, or most any media for that matter, won’t touch it, not because they don’t want you to know about it, but because they don’t understand it. Fannie Mae and Freddie Mac packaged and sold much of the smack peddled by our favorite evil investment banks, and now we’re all paying a hefty price for the once-implied, now-real government backing of these failed institutions.
Of course, the media don’t seem to understand what happened with the bailout of private companies like Goldman Sachs and Bank of America, either. To hear that story told, executives stole directly from the taxpayers’ pockets via extravagant bonuses. What actually happened: The U.S. government made the smartest investment of its pockmarked career by essentially loaning troubled but resilient businesses some money that they have partially paid back, with interest, quickly.
So let’s talk about Fannie and Freddie in plain English. In finance nerd parlance, they are (well, were) government-sponsored entities (GSEs). They couldn’t fail, and investors latched on to that. They are the original too big to fail.
Economics is all about incentives. The government gave these entities the incentive to lend to anyone. If you were the CEO of Fannie Mae and you knew that the government would almost certainly cover any loans that went bad, wouldn’t you also be in the business of loaning to anyone and everyone?
The government at some point in the middle of the last century declared home ownership the stanchion of the American Dream, and the GSEs became the circus barkers of said Dream. They buy the majority of home loans issued in this country and sell them to investors, giving the banks more capacity to make home loans. The system did not fully cause but certainly enabled the financial pain through which we continue to trudge, heads and hearts weary with uncertainty.
And who demands property and highly available credit? All the Joe and Josie Sixpacks themselves, every American in possession of the misguided notion that homeownership is somehow good and necessary. Unfortunately, most of these Americans are bereft of the ability to do second-grade math, so they never understood the mortgages they signed or comprehended that in most cases renting would make them far richer (and therefore more American) than buying, over time.
The financial meltdown has myriad, complex causes and effects. But this humble writer strongly believes that no one cause was more effectual and disastrous than the GSEs. Look at the numbers, which never tell the whole story but tell a story nonetheless. Fannie and Freddie have received $150 billion from you, the taxpayer, to date, and the government estimates it will take about $400 billion to cover their expected losses. Private enterprise has received $550 billion, spread across hundreds of institutions of all kinds, more than 10% of which has been repaid by the most vilified of the banks. Another big chunk comes back to us upon GM’s much-anticipated IPO.
Where was greed and mismanagement most egregious?
Gordon Gekko, in a marvelously ill-conceived trailer sound bite for Wall Street 2, claims “…greed is good. And apparently now it’s legal.”
Now it’s legal? By my watch, it’s always been legal, and the very foundation of not only America but the universe. Agrarian society was made possible by farmers who realized they could have a little more comfort and a lot more food for their families if they sold some of the extra grub they grew. Had Henry Ford not been driven to acquire great wealth we might all be forced to walk the earth slowly, inhaling impossibly clean air and shivering without the security blanket of global warming.
Worst…point…ever. In life, there are tradeoffs.
American Greed originated with the government, so land-hungry at certain points in our history that it stole large parcels from other countries and its own people. Subsequent white dudes in charge then made it really, really easy to build subpar homes in horribly harmonious tracts across that stolen land. Behold, our great land dotted with franchised Curves outposts and shoddy periwinkle aluminum siding.
We all feel entitled to big homes and easy credit, easy jobs, and easy access to fried foods during our 90-minute lunch breaks. We, dear nation, are soft.
Lest this screed drift too far into Tea Party-land, I’ll lay down my virtual pen and leave you with a quote from Comrade Gekko himself:
“Lunch is for wimps.”