Socialized: The Other Buzzword

The concept of nationalization has been tossed around pretty loosely over the past few weeks. Usually it’s been discussed in the context of some sort of scheme to take over some of the failing big banks and reconstitute them for eventual return to private ownership. Not even the left of center authors that I’ve read have put forth the idea in the more radical sense of a government takeover in perpetuity. No one has dared to discuss truly socializing the banking sector.

But in fact, the Obama administration has announced plans to do just that with a not so small chunk of the financial services sector. In the budget proposal that the administration presented yesterday is a plan for the government to end its support of private lenders who make student loans. In its stead, the government would assume the role of lender. Maybe this is not socialization in the sense of expropriating an existing business, but the end result is the same. The government becomes the sole purveyor of student loans thanks to its cost-of-capital advantage.

By any measure the mortgage finance market in the U.S. has been socialized. The government owns 79.9% of both and the two are completely dependent on federal largesse for their operations. With the addition of the student loan sector to the government’s portfolio a significant portion of the country’s financial system can now be fairly described as socialized.

The ultimate fate of General Motors (GM) and Chrysler is yet to be determined, but assuming that the government chooses not to force the two into bankruptcy there is certainly the possibility of a larger federal participation in the auto finance business. The government has already made a fairly substantial commitment to GMAC and it is not difficult to envision more involvement as government tries to move consumers towards purchases of “green” automotive products.

The Fed, through the TALF, plans to fill the hole left by the collapse of the shadow banking sector. The program is billed as stopgap, but its discontinuance is entirely dependent upon the reemergence of private buyers for securitized paper. That may or may not happen. and if it does not, then some more permanent solution will have to be devised. Here again, it is not unimaginable that government might take a permanent role.

If you start to connect the dots here, you can see that the federal government has become a big player in the financial markets, and one that is not there just for the short run. Contrary to the protestations about wanting the financial system to remain in private hands, the Obama administration is beginning to demonstrate by concrete actions that they are not at all afraid of running significant pieces of that system.

We do seem to have moved very swiftly towards a mixed financial economy with significant government control of some key components and at least the prospect of further tilting towards a semi-socialist regime. Surprisingly all of this happened without any honest debate or a shot being fired.

Comments

[atlasman:]

You cannot soicialize a piece of the financial market. It really is an all or nothing propisition as Fannie Mae and Frddie Mac showed. Once government takes over one bank, they will use their competitive cost advantage with rates to slowly take over the market and puish the remaining banks aside. So which is it, socialize the entire financial system or let capitolism reign. It really is one or the other. You cannot thread the needle and have the best of both worlds.

Feb 28 08:46 AM

[cabaretewil...:]

Another example of using communism to try to rescue capitalism, and in the end replace capitalism!

Feb 28 09:17 AM

[ain't no fo...:]

Yeah, you guys are right. Lets give the entire financial system back to Bush, Cheney, Cox, Chuck Prince, Dick Fuld, the CDS guys at AIG and Bear, Paulson, Greenie, the guys that ran Fannie and Freddie into the ground, the "AAA" rated ratings agencies, and all the rest of the morons and "captains of industry" who drove this country to the gates of Hell, and let them work their capitalist magic again - that should get us out of this mess Obama caused 38 days ago when he took over.

And for heavens sakes, lets all join the RNC and the Republicans in Congress to trash the new administration in the "media" (like those geniuses at CNBC and Faux "News") and on the blogs every day, so that the fear spreads and the markets crater and the recovery is delayed or fails - HURRY, lets lynch them damn socialists NOW!!! - capitalism is at stake!!!!

You point your fingers and scream the fear words - Communists. Socialists. What a bunch of bs. Capitalism died last year on Bush's watch - were you on another planet when he nationalized AIG, Fannie, Freddie, coerced Bear into its takeover by JPM, or BAC into its death grip with Merrill?

That was socialist economic engineering of the first order.

Bush and Paulson's "Capitalism" have cost the US Taxpayer $184 BILLION in losses attributed to CDS contracts gone bad at AIG alone (with an additional $60 BILLION loss about to be announced and many tens if not hundreds of BILLIONS of CDS losses still to come) - CDS contracts that are called "swaps" rather than insurance for one reason and one reason only - if they were called insurance they would have had to be regulated by state insurance regulators, and we can't have that messy interference and socialist meddling gumming up the wheels of unregulated free market capitalism now can we????????

Look in the mirror if you want to see who destroyed capitalism.

You're pathetic.

Feb 28 09:56 AM

[henarl:]

The pendulum never rests. Recently it was all the way over to rampant capitalism and unbridled individual greed. Now it is swinging towards populist socialism. When it reaches the limit of collectivism it will have another reactionary reversal of direction. Neither extreme can last long because both eventually result in more problems than solutions for the human condition so we can expect the pendulum to continue it's swinging between extremes for the rest of human history.

Feb 28 09:57 AM

[axelrod608:]

The author must be a very young person. When I went to college, the ONLY student loans were from the government. It was part of the old concept of education being one of the things provided to citizens.

In the 1960's state legislatures everywhere cut financial support of state colleges and universities. Tuition has been going up rapidly ever since as government has required ever an greater portion of the cost to be borne by the student.

To give corporations greater profits, the student loan program was turned over to private companies. Loan interest rates rose, paybacks were tougher and collections became increasingly brutal. It added substantially to the cost of education.

When the student loan lenders couldn't raise enough money to make new loans, the government stepped in to fix the problem. If this qualifies for socializing the student loan business to you, I suggest you have a bizarre way of judging what "socialism" is.

Add to that the fact that the Obama plan uses businesses to service the loans and what you have is the same business that existed 2 yearsago except using federal money rather than private capital to fund the program.

I'm really sick, tired and fed up with the "socialism" label in play these days hung on every single thing the feds do.

In Europe, college students' tuition, books, fees, health care are all paid by the governmentsplus they're given a living-wage equivalent for living expenses. THAT'S SOCIALISM. Giving federal money to privately run lenders to loan to students is not socialism.

Feb 28 11:30 AM

[Phil Trupp:]

To the ancient Greeks, "economics" meant management of a household or city state. There were operative concepts such as "just price," fixed not by what the traffic would bear but by what the seller ought to ask. "Usury" was frowned upon and often punished as a crime. Unfortunately, usury has become the norm in the student loan business. Ask any student whose after-college career is being suffocated by six figure loan agreements which carry interest and penalty rates that would make credit card companies and mortgage fraudsters downright envious.

One might argue that education, like health care, should be viewed as an investment in the future of the state. This is not a moral or ethical argument, but rather a pragmatic one in which state investment in education is viewed as intellectual capital and innovation which enhances the general good.

Knowledge is power; power produces wealth; wealth enhances the overall growth of the economy. Simple equation. Education is a plus for the national economy, it unifies the state and increases its global competitive position. The U.S.-Soviet space race is a fairly recent example. A side affect of the space program was innovation at many levels and an expansion of American prestige and prosperity.

But to get back to the student loan "business". The broad generation of education via private capital has been as abusive, devious, and decadent as the Wall Street banking industry. Its practices have deprived us of increased knowledge and exploited students after the fashion of mortgage fraudsters and loan sharks. Last year, for example, state auditors in Missouri were forced to seek court orders to open the books of the Missouri Higher Education Loan Authority (MOHELA). For years MOHELA refused state inspection, and when the books were eventually forced into the open, it was easy to see why. Auditors discovered a full-blown hedge fund/Wall Street mentality: lavish bonuses and gifts for MOHELA executives; expensive "retreats" to Branson, MO.; golden parachutes which might well gain the envy of Wall Street's rouge's gallery of bankers.

MOHELA is typical in the student loan field. It is a model for many in the industry where exploitation of borrowers is the norm and greed is not only accepted among executives, but encouraged.

Knowledge is spread by individuals and all of us benefit. The state has an obligation to treat education as a public trust and take it out of the hands of those for whom is merely another avenue of corruption and pure mercantile adventurism.

Feb 28 01:17 PM

[boats.j:]

Why doesn't Santelli piss, moan, scream, gnash his teeth and writhe in horror when the PPT steps in about 1530 everyday to prop up the markets? Capitalism my sticky rice!

Feb 28 01:59 PM

[digitaldorobo:]

Yet again, more jingoism to capitalism. Why do people like you see only polar opposites?

Canada has done very well with government control over healthcare while letting other sectors be privately run.

Your 'all-or-nothing'' perspective is out of whack with the majority of countries outside your borders. But, if more Americans had realized there is a successful reality outside of your borders, you might not be where you are right now.




On Feb 28 08:46 AM atlasman wrote:

> You cannot soicialize a piece of the financial market. It really
> is an all or nothing propisition as Fannie Mae and Frddie Mac showed.
> Once government takes over one bank, they will use their competitive
> cost advantage with rates to slowly take over the market and puish
> the remaining banks aside. So which is it, socialize the entire financial
> system or let capitolism reign. It really is one or the other. You
> cannot thread the needle and have the best of both worlds.

Feb 28 07:11 PM

[digitaldorobo:]

Communism? Wow---a little black and white wouldn't you say?

How's that strict capitalism working out for you guys?


On Feb 28 09:17 AM cabaretewilliam wrote:

> Another example of using communism to try to rescue capitalism, and
> in the end replace capitalism!

Feb 28 07:12 PM

[prudentinve...:]

Although I believe in free markets, the issue of student loans is unique enough that I have no problem with socializing them, provided this is done on a logical and transparent basis which considers the merit and capability of the student, and only for studies that can advance our country in science and industry.

The public pays for school education through high school. Almost every civilised country on earth pays for higher education on a merit basis. Our future depends on higher education being accessible to those who have the interest and intellectual capacity, regardless of their financial means.

Feb 28 07:20 PM

[kelticman31:]

Yes, So we in the US can be loved and respected around the World.. much like Canada! Oh, wait no one respects Canada..that's why you guys are so nice to everyone..YOU HAVE to.


On Feb 28 07:11 PM digitaldorobo wrote:

> Yet again, more jingoism to capitalism. Why do people like you see
> only polar opposites?
>
> Canada has done very well with government control over healthcare
> while letting other sectors be privately run.
>
> Your 'all-or-nothing'' perspective is out of whack with the majority
> of countries outside your borders. But, if more Americans had realized
> there is a successful reality outside of your borders, you might
> not be where you are right now.
>
>

Feb 28 08:03 PM

[atlasman:]

How is that? Canada has a 100% nationalized health care system. Your example supports my comment completely. Wish I had thought of it.

I ran sales and marketing for a very successful Canadian company and am very familiar with the pros and cons of their health care system. I am guessing you are familiar with the pros. Do you really understand the cons? I do not have the time to go through it in detail but let me ask one question for now:

How many drug companies does Canada have in the top 50 in the world?

en.wikipedia.org/wiki/...

There are no free lunches unless you are receiving an Obama housing bailout. There are consequences to every decision and I strongly suggestion the country thinks through them in depth and detail before they dive in to his version of change.

On Feb 28 07:11 PM digitaldorobo wrote:

> Yet again, more jingoism to capitalism. Why do people like you see
> only polar opposites?
>
> Canada has done very well with government control over healthcare
> while letting other sectors be privately run.
>
> Your 'all-or-nothing'' perspective is out of whack with the majority
> of countries outside your borders. But, if more Americans had realized
> there is a successful reality outside of your borders, you might
> not be where you are right now.
>
>

Feb 28 08:43 PM

[digitaldorobo:]

"no one respects Canada''

Ummmm...you mean the same Canada that created U.N. Peacekeeping for which we received the Nobel Peace Prize? (en.wikipedia.org/wiki/...)

The same Canada that has lost so many soldiers in Afghanistan?

The same Canada that was the destination for much of the Underground Railroad?

Yeah---we're total pricks.




On Feb 28 08:03 PM kelticman31 wrote:

> Yes, So we in the US can be loved and respected around the World..
> much like Canada! Oh, wait no one respects Canada..that's why you
> guys are so nice to everyone..YOU HAVE to.

Feb 28 08:54 PM

[digitaldorobo:]

"Canada has a 100% nationalized health care system."

If you truly knew the Canadian system as you say you do, you would know that there are private clinics at which you can pay directly to get an MRI, Cat Scan faster.

As for the number of Canadian drug companies, what does that have to do with anything? Let's say it's zero and that ALL the successful drug manufacturers are in the US. Then why, in your streamlined, successful private health care, do you pay twice as much for medication and many times as much for health care in general?

Answer: unbridled greed. The same greed that lobbies Congress to not allow African nations to produce generic versions that would save hundreds of thousands of lives every year because people would then actually be able to afford the pills.

Grab a clue.

On Feb 28 08:43 PM atlasman wrote:

> How is that? Canada has a 100% nationalized health care system. Your
> example supports my comment completely. Wish I had thought of it.
>
>
> I ran sales and marketing for a very successful Canadian company
> and am very familiar with the pros and cons of their health care
> system. I am guessing you are familiar with the pros. Do you really
> understand the cons? I do not have the time to go through it in detail
> but let me ask one question for now:
>
> How many drug companies does Canada have in the top 50 in the world?
>
>
> en.wikipedia.org/wiki/...
>
> There are no free lunches unless you are receiving an Obama housing
> bailout. There are consequences to every decision and I strongly
> suggestion the country thinks through them in depth and detail before
> they dive in to his version of change.
>
> On Feb 28 07:11 PM digitaldorobo wrote:

Feb 28 09:02 PM

[ain't no fo...:]

Uh, actually, I respect Canada.. a lot

They have this neat thing where they respect each other and aren't arrogant... odd behavior, eh?

oh, and loyal, they even help us fight our wars, and die for our mistaken policy and war making.

and they seem to look after each other, care about how everyone's doing

yup, an odd lot, them canadians


On Feb 28 08:54 PM digitaldorobo wrote:

> "no one respects Canada''
>
> Ummmm...you mean the same Canada that created U.N. Peacekeeping for
> which we received the Nobel Peace Prize? (en.wikipedia.org/wiki/...)
>
>
> The same Canada that has lost so many soldiers in Afghanistan?<br/>...
>
> The same Canada that was the destination for much of the Underground
> Railroad?
>
> Yeah---we're total pricks.
>
>

Feb 28 10:54 PM

[boats.j:]

Do what America tells you to do or we'll bomb you back to the stone age! That is unless you are China in which case America falls on its knees before you. Because America HAS to.

Live by the sword, die by the sword. Don't worry, not much longer now!


On Feb 28 08:03 PM kelticman31 wrote:

> Yes, So we in the US can be loved and respected around the World..
> much like Canada! Oh, wait no one respects Canada..that's why you
> guys are so nice to everyone..YOU HAVE to.

Mar 01 02:02 AM