Our famous non-economist, Paul Krugman[1] [2]of the New York Times--aka the Walter Duranty Papers[3] --has a history of number shuffling whereby the counterfeit theory of mixing apples, oranges and other fruits conveniently encroaches upon reality. He is an ardent tax hike artist and cannot manage to offer a coherent discussion on growth and taxation in his many articles and books. He is frequently excitable.[4] He may be the eternal  Tax Hike Zombie, a mirror image of what he thinks about the capitalists. [5]

In today’s Big Government episode from the Old Gray Lady, we read the following:

“The just-announced federal takeover of Fannie Mae and Freddie Mac, the giant mortgage lenders, was certainly the right [read left] thing to do — and it was done fairly well, too. The plan will sustain institutions that play a crucial role in the economy, while holding down taxpayer costs by more or less cleaning out the stockholders.”[6]-- The Power of De by Paul Krugman Op-Ed Columnist September 7, 2008 [Emphasis is mine in all quotes. This link references all quotes in this essay unless otherwise noted. ]

Now, there are elements of good economics implicit in this paragraph. It is true that the 90% drop in shares in these two dinosaurs from the Lyndon Johnson Administration are direct loses to the stockholders, but it is not clear if they will be ‘compensated’ or not.

Here is a sober analysis from one skilled in the financial arts and not infected with liberalism:

“The main focus for now is on government sponsored lenders Fannie Mae and Freddie Mac, who are now understood to be hopelessly undercapitalized. Despite the complete predictability of this outcome, even conservative investors, including many banks, had been persuaded that securities issued by both Fanny Mae and Freddie Mac were risk free. And although shareholders for both entities are likely to be wiped out, corporate bond holders, and those individuals and financial institutions who hold mortgages backed by both the GSE’s, correctly assume that the government will back their assets. However, hundreds of billions, perhaps trillions, of Federal dollars will be needed to make whole all who foolishly loaded up on Fannie and Freddie debt. Unfortunately, the Federal cupboards are bare.”-- By John Browne, senior market advisor – Euro Pacific Capital[7]

This is as good as it comes in terms of reality. John Browne [Harvard, Thatcher Administration, Morgan Stanley, etc. ] early on had advised many of us to go short, get to government bonds, gold and such.[8]

He [John Browne] asks the following questions:

“But, as the old saying goes, ‘What’s good for the goose is good for the gander.’ So, if government financial ‘favors’ are granted to reckless investment firms (Bear Stearns) and now mortgage borrowers, what about other economically vital ‘multiplier’ industries like: automakers, airlines, credit card and insurance companies and even corporate real estate lenders? The logical conclusion for this current drift is hyperinflation. In order to make good on its promises the Federal Government will have to resort to the printing press…with a vengeance.”

Now, just where would our krugmaniacal non-economist be on the side of rescuing government agencies and failing corporations [ especially union-besotted losers like Penn Central, which became Amtrak]?

Paul Krugman sums up:

“When the current crisis hit, Mr. Bernanke was indeed very aggressive about cutting interest rates and pushing funds into the private sector. But despite his cuts, credit became tighter, not easier. And the fiscal stimulus was both too small and poorly targeted, largely because the Bush administration refused to consider any measure that couldn’t be labeled a tax cut.

As a result, as I suggested, the effort to contain the financial crisis seems to be failing. Asset prices are still falling, losses are still mounting, and the unemployment rate has just hit a five-year high. With each passing month, America is looking more and more Japanese.

So yes, the Fannie-Freddie rescue was a good thing. But it takes place in the context of a broader economic struggle — a struggle we seem to be losing.”

Paul Krugman [2005] supported Bernake with this foolish political sop:

““there’s not a hint in his [Bernanke’s] work of support for the right-wing supply-side doctrine.” –Paul Krugman [9]

“Krugman tries to portray Bernanke as a New Deal liberal by saying, “a few years back Mr. Bernanke called on Japan to show ‘Rooseveltian resolve’ in fighting its long slump.”[10]

Here are the facts as I see them. FM & FM hold mortgages that are not on the critical list, but their job was to absorb mortgages from private lending institutions so as to free capital for more mortgage lending. Being cash short, they cannot buy new mortgages, the kinds that are now very low risk. But, they have barrowed from the banks and now the banks may be at risk. Raising interest rates merely lowers to value of a mortgage so the Fed is loath to do that.

Why should they??

We have an oversold market in housing mostly because people who wanted to buy homes with lousy credit, drug problems, criminal histories and such were encouraged to do so by outfits and anti-redlining thinking  like Greenlining.org:

"Empowering Communities With Capital"

Mission Statement: Our goal is to empower low-income and minority communities by attracting investments for health, education, homeownership, employment, and minority entrepreneurship using a holistic advocacy approach.

This is a political organization that echoes standard leftist control mechanisms that the leftists want to impose on the rest of us. This site contains numerous ‘plans’ for national control of mortgages, fees, a foreclosure moratorium for six months and other measures that essentially trade minority votes for tax money. [11]

This kind of leftist thinking fits well with Krugman’s nostrums of a ‘Rooseveltian resolve’—a slogan for tax increases and more government control.

I cannot find a single instance in Krugman’s writings where he ever advocated shutting down any government program [except maybe for the military or Star Wars] and cannot find any evidence that he ever supported any tax cut except for the low class who don’t pay very much tax in the first place.

Roosevelt could not control the depression unemployment levels [26%  in 1933 down to 15% by 1940]and resorted to World War II where he barrowed a whopping 1 year’s GDP, now corresponding to 16 trillion dollars. We were able to grown out of that mess. How can we grow out of the current 10.5 bln debt? Oh! Let us raise taxes. Let us tax the oil companies! That will work.

The central issue here is that minorities and all other persons, illegal or n0t, have numerous avenues open to them for buying homes, but many cannot meet the credit standards in many cases. This organization wants to suppress strict credit evaluations of their political clients for political reasons. Normally being against private property ownership, the left has a far-reaching vision that if the liberals can get control of the government and control Fanny Mae and her half-wit brother then the government can subsidize housing for minorities, drug addicts, illegal aliens and such. That is the goal. They will trade hoochs for votes.

Krugman agrees that the government needs to control FM and FM. He does not share with us, however, the means to resupply these two disasters with more capital.  Shall we raise taxes and give the money to Frumpy Mack and reward the inept and criminal crows for their political stubbornness? Too many Democrats got favors from the Frumpies. Criminals like  Franklin D. Raines were protected by Democrats and allowed to cook the books. Rains escaped jail. [12]

This has all gone too far. The only solution for the Fed is to keep the low interest rates and let inflation ease the debt as prices and salaries and tax revenues rise accordingly. Krugman calls this deprivatization today.[13]

We always need to invent new words and slogans for big government. We need something like deliberalization[14] of our society to be more successful and avoid mistakes.

rycK

Comments to: ryckki@gmail.com