July 14, 2008 (LPAC)--The ever-growing bailout of the bankrupt global financial system took a giant leap toward the hyperinflationary abyss over the weekend, with the announcement that the U.S. Government will provide open-ended funding to bankrupt mortgage giants Fannie Mae and Freddie Mac. In an announcement on Sunday, July 13, Treasury Secretary Henry Paulson announced "a three-part plan for immediate action." First, as a "liquidity backstop," the line of credit the two firms have at the Treasury will be increased. Second, the plan would give the Treasury the authority to purchase equity in the firms as necessary, and third, the plan would give the Fed a role in overseeing the two firms. Paulson said he consulted the Fed, the Office of Federal Housing Enterprise Oversight (OFHEO, which regulates Fannie and Freddie), the SEC, Congressional leaders of both parties, and Fannie and Freddie. The same day, the Fed announced that it has instructed the New York Fed to provide loans to Fannie and Freddie "should such lending prove necessary." The heads of the Senate and House banking committees, Chris Dodd and Barney Frank, respectively, have indicated support for the support for the proposals and will try to have legislation on the President's desk by the end of this week.
Several crucial points must be made about this plan:
* This is not a bailout of Fannie Mae and Freddie Mac, but a part of the continuing effort to protect the artificial valuations of trillions of dollars of speculative securities and quadrillions of dollars of derivatives bets, as a way of staving off the complete collapse of the global banking system. Fannie and Freddie are vehicles for this bailout, which would essentially protect the banks by shifting their losses to Fannie and Freddie, and thus to the government and the taxpayers. Far from saving Fannie Mae and Freddie Mac, this plan will destroy them.
* To fund this monstrosity, the U.S. Government, and thus the U.S. economy, will take on a huge amount of debt, which it does not have the ability to repay. The Government is already broke, and the economy has already collapsed under the weight of the huge debts it has incurred over the past four decades of de-industrial, pro-speculation economy policy. The Ding-a-ling Brothers can say whatever they want, but we're still broke, and taking on more debt to try to bail your way out of a debt crisis is completely nuts.
* The Fed has already pumped $1.2 trillion into the banking system through the emergency bailout facilities it set up over the past half-year, and has nothing to show for it except failed banks and soaring prices for oil and food. Now it wants to expand that bailout further. The bailouts, the Bush stimulus program, the regulatory forbearance and fantasy bookkeeping, have all failed, and now the plan is for an even bigger debt-recycling plan. All this is doing is accelerating hyperinflation in the financial markets, and causing soaring prices which are killing the American people.
* The financial system is dead and cannot be revived. The only rational solution is to admit the truth, put the system through bankruptcy, and implement a new system based upon restoring the productivity of the American economy. It's either that, or a hyperinflationary blowout of the dollar and a new Dark Age.
