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Has the US financial system been nationalized?

28 October 2009

No, but we’ve taken big steps in that direction.  For example, the government owns a large insurance company (AIG).  More importantly, it has nationalized 95% of the single largest component of the financial sector:  home mortgages.

20091026-mortgages

Investor Type Shares of Mortgage Origination (black = other)

From “Recent Developments in Mortgage Finance“, John Krainer, Federal Reserve Bank of San Francisco Economic Letter, 26 October 2009.  Federal Housing Administration loans are included here in the Ginnie Mae share.

The Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and Government National Mortgage Association, and Federal Housing Administration are all owned by the US government.  The 12 Federal Home Loan Banks make loans only to financial institutions, hence are not included in this graph (they have not yet gone bust and nationalized, see this for details).The government will pump hundreds of billions into them to rebuild capital lost from defaulted mortgages, to keep the housing game going.   This and other programs — like the First Time Homebuyer Tax Credit (almost certain to be extended in some form) — represent the government tossing our furniture into the fire.  Anything to keep the rickety debt-ridden engine of American finance running. 

Question for the day:  if asked, would most Americans approve?  Is this democracy in action, our representatives carrying out our wishes?  Or will we see posters at the next tea parties “Keep the government’s hands off our mortgages?

For more information from the FM site

To read other articles about these things, see the FM reference page on the right side menu bar. Of esp relevance to this topic:

Reference pages about other topics appear on the right side menu bar, including About the FM website page.

About nationalizing the financial sector:

  1. Slow steps to nationalizing the US financial sector, 7 April 2008
  2. The last opportunity for effective action before disaster strikes, 3 October 2008 — About the road not taken.
  3. A free lesson from Russia: how to manage a banking crisis, 6 February 2009

About the housing crisis:

  1. Diagnosing the eagle, chapter I — the housing bust, 6 December 2007
  2. A vital but widely misunderstood aspect of our financial crisis, 18 September 2008 — Too many homes.
  3. Destroying houses in order to boost home prices, 16 December 2008
  4. The housing crisis allows America to look in the mirror. What do we see?, 9 March 2009
  5. Another step to solving the housing crisis: downsize cities by destroying neighborhoods, 2 April 2009

About the bank bailout:

  1. Slowly a few voices are raised about the pending theft of taxpayer money, 21 September 2008
  2. The Paulson Plan will buy assets cheap, just as all good cons offer easy money to the marks, 30 September 2008
  3. A reminder – the TARP program is just theft, 24 November 2008
  4. A solution to our financial problems: steal wealth from other nations, 2 February 2009
  5. Stand by for action – more theft of our money being planned in Washington, 4 February 2009
  6. Update: yes, the Paulson Plan was just theft, 14 February 2009
  7. Now is the time for America to get angry, 24 March 2009
  8. America on its way from superpower to banana republic, 28 March 2009
  9. The best way to rob us is to own a bank, 10 April 2009
  10. Bush’s bailout plan is now Obama’s. His quiet eloquence guides the sheep into the pen, 30 March 2009
  11. “The Greatest Swindle Ever Sold”, by Andy Kroll in The Nation, 28 May 2009
  12. More about “Government Sachs” (they own America; we just live here), 31 July 2009

Afterword

Please share your comments by posting below. Per the FM site’s Comment Policy, please make them brief (250 word max), civil and relevant to this post. Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

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5 Comments leave one →
  1. James Morton permalink
    28 October 2009 10:52 am

    Take it from me (A brit) when I tell you that your banks have not been nationalized. What your government has done is give a lot of your money to the banks to keep them afloat. They needed this money because their liabilites far exceeded what profit they made and the little hard cash they had in reserves.(and still do). They are not run in the public sector where all posts are paid by the government, nor are any directors government appointed or paid. Shareholders have not been dumped and obscene bonuses are still paid. (albiet entirely subsidised by the tax payer bailout) In other words, bankers from the lowliest bank teller to a bank manager or director are not government employees. (called civil servants in the uk)

    They not even regulated and there appears to be very little oversight. Regulation being a very dirty word in a free market environment.

    If they have nationalized anything it is the debt incurred will ensuring the profits remain entirely private. The banks are not charged with running in the public interest and are not accountable.

    You (the American public) do not own your banks despite the bailout nor does your government…which is clear from their behaviour. It’s like they say…nothing succeeds these days like failure. I may be wrong but I don’t think i am when I say that there have been only a few occasions in your history when the Government intervened and nationlised certain areas of industry….mostly due to the areas in question facing ruin and bankruptcy.

    My country has had goverment run and controlled industry from the mid 19th century onwards, only now being unravelled in the last 10 years or so. And most of it now requiring to be bailed out or rely on public subsidy to remain solvent. You couldn’t make it up…don’t even get me started on PFI!

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  2. billy-bob permalink
    29 October 2009 3:53 am

    James: I’ll go you even one further; the banks own the U.S. Government. Senator Dick Durbin (Illinois) has even said as much publicly: “Dick Durbin: Banks ‘Frankly Own The Place’“, Ryan Grim, Huffington Post, 29 April 2009. Simon Johnson wrote extensively about the financial coup d’etat in May 2009 The Atlantic: “The Quiet Coup“.

    The Democrats & Republicans are nothing but a duopoly that rapes and pillages the U.S. (and yes, even the world’s) population for fun and profit.
    .
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    Fabius Maximus replies: Hearty welcome to fellow believer! For my expression of similar views see Politics of the FM site: radical leftist reformer or right-wing iconoclast? For analysis of the bipartisan response to this crisis see section 7 — Theft pretending to be solutions — of Financial crisis – what’s happening? how will this end?

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  3. James Morton permalink
    29 October 2009 10:29 am

    Theft pretending to be solutions UK style: Clampdown of Bonus culture at RBS (Now “state” owned)
    Feb 2009:
    Chancellor Alistair Darling announces “a cultural change, moving away from short-term bonuses which have caused so much damage…the bank is committed to in the future making sure that instead of cash bonuses they’re paid in the form of capital so the employees have a long term incentive to do the right thing”

    21st October 2009:
    Alistair Darling has openly criticised Goldman Sachs over its plan to pay huge staff bonuses so soon after the financial crisis nearly crushed the banking sector. Speaking at an event in London this lunchtime, the chancellor cited the Wall Street giant as an example of a bank that “manifestly” failed to appreciate how the City landscape had changed. “What happened with Goldman Sachs last week sends the wrong signals,” said Darling, who was attending an event at Canary Wharf. “I’ve spoken to all our banks and none of them would be standing here today if the taxpayer hadn’t put their hand into their pocket.”

    Meanwhile in the UK RBS (“state run”)appoints 11 new investment bankers on guaranteed cash bonuses totalling £5million

    I think the problem is that the lines between Government and Business have become dangerously blurred. I think we all need to see a new Dis-establishment act. A formal seperation of powers putting business back where it belongs: Regulated by government just like the rest of us are.

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  4. Tony permalink
    29 October 2009 7:18 pm

    Yeah, I’m with the other posters. The banks haven’t been nationalized in the sense that there’s a central planning diktat. It’s private gains but public losses.
    .
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    Fabius Maximus replies: I find it odd that people think banks are our financial system. They are only one component. The mortgage finance machinery is of equal importance, and has been almost totally nationalized.

    Like

  5. James Morton permalink
    30 October 2009 10:40 am

    FM: “I find it odd that people think banks are our financial system. They are only one component.

    I think it depends on how big of a component it represents. In the UK it accounts for 30% of GDP How much of it accounts for the US? I don’t know for sure. In iceland it rose to 26% However, banking sector assets kept growing from about 96 per cent of GDP in 2000 to about 10 times today – the main source of concern about the country.

    If your country is epxosed to such a large sector with no real protection or regulation, when it tanks you find you have little to fall back on. You then have to rely on printing money into existence to keep yourself and the sector afloat. Which is exactly what happened.

    And what measures they have taken is to essentially try and re-inflate the bubble, without dealing with the underlying symptoms.
    We maybe be staggering out of reccession, but all nations involved are staring at eye watering levels of debt…and the debt that almost broke the banks is still there, and through the magic that is compund interest its getting bigger every day!
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    Fabius Maximus replies: For most Americans, a mortgage is by far the most important financial engagement they make. So its availablility and cost are of great importance.

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