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The Neolibertarian NetworkLarry Summers On Freddie Mae
I post this with some trepidation. Not because I don’t agree with it but because I just saw a picture of Larry standing behind Granny Nan seemingly supporting her insane position on energy.
Be that as it may. Here’s the money quote.
What went wrong? The illusion that the companies were doing virtuous work made it impossible to build a political case for serious regulation. When there were social failures the companies always blamed their need to perform for the shareholders. When there were business failures it was always the result of their social obligations. Government budget discipline was not appropriate because it was always emphasized that they were “private companies.” But market discipline was nearly nonexistent given the general perception — now validated — that their debt was government backed. Little wonder with gains privatized and losses socialized that the enterprises have gambled their way into financial catastrophe.
I wonder how general the lesson here might be. My fear is fairly general. Inherent in the multiple objectives urged for creative capitalists is a loss of accountability with respect to performance. The sense that the mission is virtuous is always a great club for beating down skeptics. When institutions have special responsibilities it is necessary that they be supported in competition to the detriment of market efficiency.
It is hard in this world to do well. It is hard to do good. When I hear a claim that an institution is going to do both, I reach for my wallet. You should too.
Virtuous work.
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Is that what they called “mixed capitalism,” or is that just mixed-up capitalism?
Anyway, I am beginning to like the idea of keeping my profits and sharing my losses. I especially like the idea of me investing in these companies, and if anything goes wrong, Jay Stevens, Wulfgar, Mark T. and a few others will get hit with the bill. Of course, I am assuming they all have jobs and pay taxes.
Hey, Dave, here is a stock deal that cannot lose money!
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NEW YORK (MarketWatch) — Freddie Mac is considering raising capital by selling as much as $10 billion in new shares to investors, the Wall Street Journal reported Friday, citing unnamed people familiar with the matter. The move, which comes as emergency regulatory actions have triggered a two-day rebound in its stock, would have the potential to avoid a full-blown government rescue for Freddie Mac and Fannie Mae.
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I think I get it: Avoid a full-blown government rescue by manipulating your stock price with a half-blown government guarantee.