Fed payouts to mortgage banks are a crime
Workers need bailout plan
Published Jul 17, 2008 12:19 PM
Desperate times call for desperate measures. The capitalist class and its state
are getting increasingly desperate as they attempt to stave off a global
collapse of the financial system.
On July 13 the U.S. Treasury Department and the U.S. Federal Reserve unveiled a
hastily devised plan aimed at rescuing Fannie Mae and Freddie Mac, the mortgage
lending behemoths, from the brink of bankruptcy.
Combined, Fannie Mae and Freddie Mac own or insure half of the more than $12
trillion mortgage debt in the U.S. Bonds issued by Fannie and Freddie are held
in massive quantities by governments and institutional investors around the
The bailout plan is essentially a promise by the capitalist state to help
finance Fannie and Freddie for the foreseeable future.
Officials from the Treasury and the Fed have been in constant contact with Wall
Street in recent days in panicked attempts to persuade investors to stop
dumping Fannie and Freddie stock and to continue purchasing bonds issued by the
once-hallowed financial institutions.
The story of Fannie Mae and Freddie Mac begins back in the Great Depression. In
1938 President Franklin Roosevelt initiated the creation of Fannie Mae as a
public financial institution. Roosevelt’s aim was to resuscitate the
ailing Depression-era housing market by having the government back low-cost,
fixed-rate mortgage loans. Fannie operated in this form until 1968.
That year, President Lyndon Johnson, who was growing increasingly worried about
the escalating costs of the Vietnam War, pushed to have Fannie taken off the
federal books. Johnson didn’t like having to devote part of the budget to
mortgages for working families; instead he preferred to spend it on imperialist
war in Southeast Asia. From that point forward, Fannie became a quasi-private
institution known as a Government Sponsored Entity.
GSEs are shareholder-owned companies, but they have the expressed backing of
the capitalist government. GSEs are owned and operated like private companies
but are promised public funds if they should ever get into financial trouble.
Freddie Mac was established in 1970 to operate as a sibling company to Fannie
Since decoupling from the federal books in 1968, Fannie and Freddie have taken
on an ever-increasing role in the U.S. housing market. The two companies have
moved steadily away from Fannie’s once chartered role of providing
low-cost, fixed-rate mortgages. They have increasingly assumed the role of
massive banks for the vast network of financial institutions involved in the
U.S. housing market.
Fannie and Freddie facilitate lending in the U.S. housing market by issuing
bonds to investors and then using the money from the bond sales to buy blocs of
mortgages from banks. In this way, they grease the wheels of lending in the
United States by taking illiquid assets off the banks’ hands and pumping
money capital into the system.
During the housing bubble of 2002-2006 Fannie and Freddie grew astronomically
as they became the two largest players in the unprecedented housing market
boom. The ability of Fannie and Freddie to purchase massive blocs of mortgage
loans from the banks helped set the stage for the proliferation of a host of
dubious mortgages with untenable rates. The ability of mortgage holders to pay
their mortgages was no longer important to many lenders, as they knew they
could easily, and quickly, sell the loan to a larger institution.
Fannie and Freddie raked in massive profits for their shareholders during the
bubble years, but, like seemingly every other financial institution, insatiable
greed led them to become increasingly leveraged and loaded down with fictitious
Around the globe, banks—the heartbeat and lifeblood of modern monopoly
capitalism—are steadily becoming insolvent. Banks of all shapes and sizes
are going belly up.
From investment banks like Bear Stearns, to commercial lenders like IndyMac and
Northern Rock, and now to the GSEs like Fannie and Freddie, it has been one
bank-run after another. There is no end in sight as the largest housing market
collapse since the Great Depression continues to drag a multitude of large
financial institutions to the brink.
Capitalism: exploitative, crisis-prone and not worth
As with the Bear Stearns collapse in March, the capitalist-controlled media
have been pumping out the message that the bailout of Fannie and Freddie is
necessary because the institutions are “too big to fail.” The
refrain goes that if Fannie and Freddie go down, the systemic damage their
collapse would unleash would cause even greater economic suffering.
How many companies need to be bailed out with public money before it becomes
clear that this rotten, exploitative and crisis-prone economic system is not
worth saving? The capitalist bankers and bosses have run their ships into the
ground. Why should the workers, whom they daily oppress, be forced to provide
them with lifeboats?
In any bailout of Fannie and Freddie, the money should go directly to workers
who have faced or are facing foreclosure, or the workers who have suffered when
their pensions and retirement savings were invested in these companies. But the
capitalist state would never truly get behind that kind of a rescue plan. The
state’s only loyalty is to the capitalist class.
It is painfully clear that the growth and expansion of free markets, which took
place in the wake of the dissolution of the Soviet Union, have been an
unmitigated disaster for workers and oppressed around the globe.
In the past two decades, proponents of free-market economics have denounced
socialism as inefficient and utopian. They claimed that the growth of
“democracy and free markets” would bring about a post-Cold-War era
of global prosperity.
Yet with the global financial system on the precipice of collapse, millions of
workers forced from their homes by foreclosure, skyrocketing energy prices and
nearly 1 billion people going hungry every year, the idea that “democracy
and free markets” will bring about an era of global prosperity seems
Capitalism is clearly failing, but what is the alternative? The answer lies in
the development of working class consciousness and the renewed struggle for
Karl Marx wrote that the capitalist state is set up to manage the common
affairs of the capitalist class. This fact is evident today as Republicans and
Democrats hastily put aside their manufactured election year differences in
order to legislate the bailout plans being concocted by the Treasury and the
The working class, long subject to the divisive prejudices deliberately sown
among us by the ruling class, must unite in our own common class interest and
take the offensive against the capitalist class.
Private ownership of the means of production is at the root of this deepening
economic crisis. The abolition of private property and the development of
socialism can provide the way out of this crisis, and ensure that the kind of
economic suffering this crisis has wrought never occurs again.
While the abolition of private property sounds like a daunting task, the
reality is that the ruling class has already laid the foundations for its own
By organizing billions of workers into a vast productive network, where
everything from the extraction of raw materials to the sale of the final
commodity is linked, the ruling class has already socialized the productive
capacity of society. An organized army of workers already has the reins to the
In this period of extreme economic crisis, the capitalist class would find
itself in even bigger trouble in the face of concerted and well-organized
strikes, walkouts, plant takeovers and militant resistance to the banks that
are seizing our homes. A united working class could quickly bring the vast
machinations of global capitalism to a screeching halt.
In the coming period, which will be marked by ever-increasing economic
instability, it is incumbent upon the entire revolutionary left to do
everything possible to help foster militant working-class solidarity and to
renew and reenergize the global class struggle. There is a world to win.
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