Corporate welfare today: Fannie Mae & Freddie Mac

Putting to rest any belief about the market being “free”, US Treasury Secretary Henry Paulson announced another taxpayer-sponsored bailout of an American corporation yesterday. Reminiscent of the recent Bear Stearns bailout, the beneficiaries are also private corporations: Freddie Mac and Fannie Mae. Together, Fannie and Freddie own or guarantee just under half of the country’s $12 trillion in mortgage debt:

Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in the financial markets here at home and around the globe. This turmoil would directly and negatively impact household wealth, from family budgets to home values, to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation. That is why we have taken these actions today.Henry Paulson, 8 September 2008

A free market would allow all mismanaged business to fail and their higher-ups suffer the slings and arrows of competition, just like the government routinely does for small businesses. So the question is who gets the benefit of business-friendly government largesse, not whether we have a free market.

[W]e’re watching the death of the free market ideology. It hasn’t been announced. But increasingly, the policies, the way we talk, the way we make legislation all but formally abandons the notion that the market can do it right, the government will do it wrong, and that government intervention is a bad idea. It turns out that government intervention is a bad idea, unless you want and need money from the government, in which case it becomes a fine idea, and bring on the government cash. So it might be unfortunate when somebody who’s having a tough time in their life wants a free piece of cheese, but when a bunch of executives want a free $100 billion, it turns out that’s the kind of government intervention we can all get behind, we can all believe in.Max Fraad Wolff (audio, video, transcript)