Growing Strands of Iffiness Entangle the Worlds Bank Bailouts

by
William Krehm

The New York Times (23/07, “A Mortgage Rescue Strains Calculations” by David M. Herszenhorn) reports: “Washington - The proposed government rescue of the nations two mortgage finance giants should appear on the federal budget as a $25 billion budget expense, the independent Congressional Budget Office said on Tuesday, but officials conceded that there was no way to really know what, if anything, a bailout may cost taxpayers.

“The budget office said the chances were better than even that a rescue would not be needed before the end of 2009 and would not cost any money. But the office also said that there was a 5% chance that the mortgage giants, Fannie Mae and Freddie Mac, could lose $100 billion.

“The budget office said that the $25 billion would not have to be offset with spending cuts or tax increases as would normally be required by pay-as-you-go budget rules, and instead would be regarded as emergency spending and added to the national debt.”

What the reporter fails to do is remind his readers that the national debt since 1971 when the United States went off the gold standard and took the world with it on that detail, the debt of the central government has been the only legal tender in the US, and to a considerable extent in the world. There are thus qualitative as well as quantitative dimensions to the uncertainties surrounding the two mortgage giants. We do not know how much subprime currency will be entering, and indeed has already entered, the legal tender of the US and the world.

“The budget office, while acknowledging that the $25 billion was, at least, a rough estimate, did not explain fully how it came up with the figure. The office said it analyzed the companies financial statements and consulted with regulators, analysts, market participants and the companies themselves to estimate possible future losses and the amount of any future cash injection that might be needed from the Treasury.

“The full $25 billion cost would appear on the governments books in both fiscal years 2009 and 2010; the Treasurys authority to aid Fannie and Freddie would expire at the end of 2009, or one-fourth of the way into fiscal 2010.

“Senator Jim DeMint, Republican of South Carolina, said lawmakers were generally supportive of the overall rescue plan, but he added that he had doubts about the $25 billion estimate, Everyone knows its just a wild guess.”

In short a bit like the risk controls of diced and sliced subprime mortgage packages. But this time the shoddy game is with the legal tender of the US, and to an extent of the world.

“The House is expected to vote as soon as Wednesday on housing legislation that includes the proposed rescue plan. The housing bill would also raise the national deficit to $10.6 trillion, with a $800 billion increase.” Under the Rooseveltian banking laws that eased the Depression, the amount of legal tender obtained by the statutory reserves that the banks had to deposit with the Federal Reserve on a non-interest basis provided an alternative to a supplement to the benchmark Fed Funds rate that that stimulated or restrained the economy. Now the subprime mortgage rates encroaching through the guessing game of the Fannie and Freddie bailouts is enthroning interest rates once again in absolute power as the dominant revenue of the land. That equips the world with a subprime currency system.

Obviously the only conclusion that can be drawn: is it is time to start dismantling the corrupt and ever more corrupting Globalization and Deregulation of our banking system?