Government Rescues and Socialized Capitalism
In our story Monday about the government’s rescue plan for Fannie Mae and Freddie Mac, we raised the question of why, once again, no conditions were required
Jul 31, 20203.6K Shares1.8M Views
In our storyMonday about the government’s rescue plan for Fannie Mae and Freddie Mac, we raised the question of why, once again, no conditions were required from the institution being rescued. Like Bear Stearns, both of the mortgage giants weren’t asked for anything in return for gaining access to possibly billions of dollars and loans and investments from the federal government.
President Bush deniedin Tuesday’s press conference that help for the two companies amounted to a bailout, but some see the government’s actions as just that.
Economist and former Clinton administration Labor secretary Robert Reich callsthe government’s actions “socialized capitalism,” consisting of private gains and public losses. How do you weigh that against the need to help investment banks that are too big to fail? Reich has some ideas in his post:
“„Here’s a modest proposal: When taxpayers insure a giant entity against loss — as we now are with Freddie, Fannie, and Wall Street investment banks — those entities must agree that: (1) for the duration of the bailout, their top executives cannot receive total annual compensation higher than that received by the President of the United States, and 2) the government gets five percent of their current valuation as shares of stock (roughly representing the benefit to their shareholders of the federal insurance) — so that if and when the entities become profitable again, taxpayers are compensated for the risk they’ve taken on.
Reich isn’t the only one with some second thoughtsafter Monday’s frenzied actions. For the next investment bank that seems on the edge of disaster, don’t be surprised to see the government attach a few conditions. After a few of these bailouts, the feds unfortunately are getting some experience at this.
Camilo Wood
Reviewer
Camilo Wood has over two decades of experience as a writer and journalist, specializing in finance and economics. With a degree in Economics and a background in financial research and analysis, Camilo brings a wealth of knowledge and expertise to his writing.
Throughout his career, Camilo has contributed to numerous publications, covering a wide range of topics such as global economic trends, investment strategies, and market analysis. His articles are recognized for their insightful analysis and clear explanations, making complex financial concepts accessible to readers.
Camilo's experience includes working in roles related to financial reporting, analysis, and commentary, allowing him to provide readers with accurate and trustworthy information. His dedication to journalistic integrity and commitment to delivering high-quality content make him a trusted voice in the fields of finance and journalism.
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