Gov’t gives away billions to big mortgage bankers

Secretary of the Treasury Henry Paulson announced on Sept. 7 the government bailout of the two largest financial institutions in the world, Fannie Mae and Freddie Mac.

Combined, Fannie Mae and Freddie Mac own or insure almost half the $12 trillion in mortgage loans in the U.S. The government takeover of management is the largest intervention in the affairs of a private company in history.

Paulson’s announcement capped a tumultuous past few months at Fannie and Freddie, as mounting losses on mortgage-backed securities, coupled with an inability to raise new capital from investors, brought the financial giants to the brink of insolvency. Fannie and Freddie shares have plunged in value over the past year, falling from over $60 a share to less than $5 a share.

The rescue by the Treasury Department has been in the making since July, when Secretary Paulson quickly convinced Congress to hand the Treasury Department a blank check with which to cover the massive financial losses at Fannie and Freddie.

The bailout was made official this past weekend, as the heads of both companies formally signed over control to the federal government. Technically, the government has set up a conservatorship that has the option to buy almost 80 percent of the common stock at low prices and manages the business. About 20 percent of the stock is still privately owned, but its value has decreased drastically in the past year.

Many workers whose pension funds were invested in stocks in these two entities will have their retirement savings wiped out under the government’s takeover plan.

Meanwhile, the financial tycoons who ran the companies into the ground appear to be escaping with golden parachutes. Former Fannie Mae CEO Daniel H. Mudd stands to receive a $9.3 million severance package on top of the more than $12.4 million in cash and stock compensation he has received since becoming CEO in 2004. Former Freddie Mac CEO Richard F. Syron stands to receive a $14.1 million severance deal on top of the $17.1 million he has already banked since becoming CEO in 2003.

Government for the rich by the rich

In the past two years, millions of working families have lost their homes to foreclosure and eviction, as the worst housing crisis since the Great Depression continues to intensify by the day. Entire working-class communities have been destroyed as the tidal wave of foreclosures continues to surge across the country, leaving boarded-up windows and “for sale” signs in its wake. But the federal government has done absolutely nothing of substance to help the millions of workers affected by foreclosures.

Meanwhile, over the past year, the government has rushed to the aid of nearly every investment bank and financial institution affected by the housing market meltdown. The same financial institutions that helped spark the crisis by underwriting predatory subprime mortgage loans are being bailed out left and right.

The rescue of Fannie Mae and Freddie Mac comes in a year where the federal government has already stepped in to rescue the fifth largest investment bank, Bear Sterns, take emergency control of Indy Mac, and provide constant monetary handouts to banks like Citigroup and Lehman Brothers through the Federal Reserve’s recently invented Term Auction Facility.

The government tells workers there is no money for universal health care and no money to improve public education, but when a financial institution runs into trouble, billions of dollars in bailout funds instantly materialize. Billions that could have been spent on human needs like housing, healthcare and education will instead be used to clean up the financial mess created by Fannie and Freddie.

In his analysis of the state under capitalism, Marx asserted that the capitalist government is set up to manage the common affairs of the capitalist class. This fact has been evident over the past year, as the two ruling-class political parties have quickly come together to rubber-stamp the nonstop bailouts concocted by the Treasury and the Fed. Indeed, the U.S. Congress essentially handed over its constitutionally designated power of the purse by giving the Treasury Department a blank check for Fannie and Freddie.

Developing a movement for workers by workers

During these excruciatingly tough economic times for workers, the federal government’s handouts to the banks and financial institutions are blatantly criminal. Despite claims that the U.S. government is a democracy run by the people for the people, it is painfully clear that the rich and their hirelings run the government for the benefit of the rich.

Workers cannot afford to wait for another federal “stimulus” package or other band-aid solutions to lessen the economic suffering. Workers must unite in their own common class interest and take the fight to the capitalists and their representatives in the government. The working class must use this period of capitalist instability to take the offensive and advance working-class demands.

With the government now assuming the day-to-day management of the two mortgage giants, working-class and community organizations have the opportunity to call on that same government to place a moratorium on all foreclosures of mortgages held by or guaranteed by Fannie Mae or Freddie Mac. Paulson has announced a bailout of the rich. It is an outrage that there is no government aid for workers and poor people to keep a roof over their heads.

Coalitions in Michigan and California are holding protests on Sept. 17 (see articles pages 6-7) to demand such a moratorium on a statewide basis. The national bailout of Fannie Mae and Freddie Mac cries for a call for a national moratorium on foreclosures to protect people’s right to a home.