Thirty years of neo-liberal attack on the statist reforms of the New Deal took a serious detour today as the Federal government stepped in to bolster the troubled government sponsored enterprises, Fannie Mae and Freddie Mac.
These giant financial institutions had always benefitted in the financial markets from an implicit government guarantee that they were “too big to fail.” While efforts to cut the umbilical cord between them and the U.S. government had been attempted today the pendulum swung firmly in the opposite direction (yes, a mixed metaphor).
The Federal Reserve opened up its doors to allow the two institutions to borrow from it and the U.S. Treasury said it reserved the option to invest cash for an equity stake.
Some republican and conservative defenders of the neo-liberal counter revolution may try to excuse the behavior as analogous to the police powers that the government must exercise in cases of genuine public danger. But that case may be hard to sustain depending on how deeply involved the government now becomes.
The problem is that the massive multi-trillion dollar explosion in finance capital over the last several decades depends fundamentally on the returns generated in a now global and rapidly changing economy. No one can safely predict if or when any money invested by the government will be returned. In the meantime, in essence, the American taxpayer is being asked to go ever deeper into debt to rescue an anarchic global capitalist system. Of course, as someone who is trying to sell a house, maybe this is the bottom!