Progressive Calendar 07.17.08
From: David Shove (
Date: Thu, 17 Jul 2008 01:04:35 -0700 (PDT)
             P R O G R E S S I V E   C A L E N D A R    07.17.08

1. Human rights     7.17 12noon
2. New Hope demo    7.17 4:30pm
3. Eagan vigil      7.17 4:30pm
4. Northtown vigil  7.17 5pm
5. Artcar           7.17 5pm
6. Amnesty Intl     7.17 7:15pm

7. Palestine        7.18 8am
8. RNC/AWC/KFAI     7.18 11am
9. Block party      7.18 5pm
10. Full moon walk  7.18 7pm
11. Moyers/mortgage 7.18 8pm

12. Dick Meister   - It's time for workers of the world to unite
13. Michael Hudson - Freddie Mac & Fanny Mae exposed
14. ed             - The Freddie and Fanny Poems

--------1 of 14--------

From: Charles Underwood <charleyunderwood [at]>
Subject: Human rights 7.17 12noon

7/17, noon to 1 pm, lunch lecture on the International Criminal Court: An
Important Enforcer of Human Rights with U of M La prof Duane Krohnke,
Faegre & Benson LLP, 22nd Floor, Wells Fargo Center, 90 S 7th St, Mpls.
Lunch provided (CLE credit application also) with RSVP by 7/15 to
jkashaeva [at] or 612-341-3302, ext 127.  Info at

--------2 of 14--------

From: Carole Rydberg <carydberg [at]>
Subject: New Hope demo 7.17 4:30pm

NWN4P-New Hope demonstration every Thursday 4:30 to 6 PM at the corner of
Winnetka and 42nd.  You may park near Walgreens or in the larger lot near
McDonalds; we will be on all four corners.  Bring your own or use our

--------3 of 14--------

From: Greg and Sue Skog <family4peace [at]>
Subject: Eagan peace vigil 7.17 4:30pm

CANDLELIGHT PEACE VIGIL EVERY THURSDAY from 4:30-5:30pm on the Northwest
corner of Pilot Knob Road and Yankee Doodle Road in Eagan. We have signs
and candles. Say "NO to war!" The weekly vigil is sponsored by: Friends
south of the river speaking out against war.

--------4 of 14--------

From: EKalamboki [at]
Subject: Northtown vigil 7.17 5pm

NORTHTOWN Peace Vigil every Thursday 5-6pm, at the intersection of Co. Hwy
10 and University Ave NE (SE corner across from Denny's), in Blaine.

Communities situated near the Northtown Mall include: Blaine, Mounds View,
New Brighton, Roseville, Shoreview, Arden Hills, Spring Lake Park,
Fridley, and Coon Rapids.  We'll have extra signs.

For more information people can contact Evangelos Kalambokidis by phone or
email: (763)574-9615, ekalamboki [at]

--------5 of 14--------

From: Julie Bates <julie [at]>
Subject: Artcar 7.17 5pm

Workshop: Make Your Own ArtCar!
Thursday, July 17, 5pm-7pm at Intermedia Arts (Aldrich Lot)
Free and open to the public, hosted by Tom Edwards and the Leather Van
Join ArtCar artist Tom Edwards for an ArtCar making workshop. Bring
your vehicles and materials and create alongside Tom and other seasoned
artists. Watch demos on a new Leather Van and get tips from the pros!

--------6 of 14--------

From: Gabe Ormsby <gabeo [at]>
Subject: Amnesty Intl 7.17 7:15pm

AIUSA Group 315 (Wayzata area) meets Thursday, July 17th, at 7:15 p.m. St.
Luke Presbyterian Church, 3121 Groveland School Road, Wayzata (near the
intersection of Rt. 101 and Minnetonka Blvd). For further information,
contact Richard Bopp at Richard_C_Bopp [at]

--------7 of 14--------

From: Lydia Howell <lhowell [at]>
Subject: Palestine 7.18 8am

A special opportunity to hear about issues in the Israeli-Palestinian
conflict and peace process from key figures in the Israeli peace camp,
TALIA SASSON and ILAN PAZ, two Israelis whose high level Israeli civil and
military positions make them very informed and experienced on the
situation and its prospects.

Friday July 18th 8 am-9:30 am
Common Roots Café in Mpls MN (Common Roots Café is located at
2558 Lyndale Ave. South, Mpls. At the corner of 26th and Lyndale Ave.
Common Roots is a local treasure and has affordable breakfast foods and
drinks and the best bagels around.  For more information or details:
It is a rare opportunity to be able to host these two speakers and they
will only be in town briefly. Come hear what they have to share.

SASSON and PAZ will discuss policies that are politically viable and ideas
can be transferred to action. They will address the changing political
landscape in relation to the viability of a two-state solution, ways to
improve the situation on the ground, and the challenges and opportunities
for the next American president. They will also be discussing the West
Bank closures, prisoner exchanges, and the Gaza Ceasefire.

Attorney TALIA SASSON worked in the Israeli State Attorney's Office
between 1979 and 2004. She headed the Department for Special Tasks in the
State Attorney's Office and later authored the far reaching report on
unauthorized outposts in the West Bank, commissioned by the government of
Israel, and served as special advisor to the ministerial committee charged
with implementing its recommendations.

ILAN PAZ is a retired high-ranking IDF Officer with broad expertise
derived from 28 years' varied military service. He served as deputy
commander of the Naval Commando, the West Bank Territorial Brigades
Commander, and as Head of the Civil Administration in the West Bank. He is
currently a senior strategic consultant to several NGOs, think tanks, and
academic institutions seeking to further an Israeli-Palestinian peace

Their current American tour is facilitated by THE CENTURY FOUNDATION'S
PROSPECTS FOR PEACE INITIATIVE, which uses dialogue and policy research to
inform and enrich the American policy debate on long-running conflicts in
the Middle East - core among them the Israeli-Palestinian conflict - and
to advance pragmatic policy solutions to resolve them.

This event is sponsored in part by the MINNESOTA CHAPTER OF BRIT TZEDEK
SHALOM (BTVS). For more information about BTVS's activities and how to
become more involved in our local chapter go to

In addition these speakers will be speaking at the the Sabes JCC in St.
Louis Park at noon on Friday July 18th.  This event is sponsored by the
JCRC.  A light Israeli lunch will be served.  Please RSVP by noon on
Thursday July 17, 2008 to Jacob Millner at jacob [at]

--------8 of 14--------

From: rnc08 [at]
Subject: RNC/AWC/KFAI 7.18 11am

Fox News' favorite radio commentators the RNC Welcoming Committee, along
with the Anti-War Committee, will be featured on community radio station
KFAI on Friday, July 18.  We'll be on Lydia Howell's show Catalyst:
Politics and Culture from 11-11:30am to talk about crashing the convention
and the solidarity because the diverse groups organizing to do it.

Listen in at 90.3 FM in Minneapolis, 106.7 FM in St. Paul, or stream it at  You can also listen to Lydia Howell's last show, featuring
David Rovics, at  Don't forget about Rovics'
benefit concert July 21 at the Bedlam Theatre in Minneapolis:

--------9 of 14--------

From: PRO826 [at]
Subject: Block party 7.18 5pm

Friday July 18 The Labor Neighborhood Block Party
5:00-11:00 pm
Nicollet Mall between 3rd and 4th Streets
Presented to you by the Minneapolis Building and Construction Trades
Council, come celebrate the official kick-off of the Minneapolis
Aquatennial at the largest free outdoor concert in the state!

--------10 of 14--------

From: "wamm [at]" <wamm [at]>
Subject: Full moon walk 7.18 7pm

The "Blessing" Full Moon Walk
Friday, July 18, 7:00 p.m. Minnehaha Park, 54th Street South, Minneapolis
(South End of the Pay Parking Lot). July's moon is called the Blessing or
Red Chokecherry moon in various traditions. In olden times, to be blessed
was to be saved. July is opposite January, the coldest, darkest time of
year-a hungry time. July is full of ripening fruit and vegetables, and
easy weather. We'll count our blessings on this walk! Always free and open
to the public. Traditional group howl! FFI: Visit

--------11 of 14--------

From: t r u t h o u t <messenger [at]>
Subject: Moyers/mortgage 7.18 8pm

Bill Moyers Journal | Mortgage Meltdown
This week, PBS's Bill Moyers Journal travels to ground zero of the
mortgage meltdown - Cleveland, Ohio. Correspondent Rick Karr takes viewers
to Slavic Village, one of the hardest-hit neighborhoods in the nation when
it comes to the spate of foreclosures caused by the sub-prime mortgage
crisis. There, more than 1,000 homes stand vacant and decaying in a
neighborhood that once thrived with families living the American dream of
home ownership. Moyers gets perspective from veteran journalist William
Greider on the current financial crisis and what he calls "the great
deflation of Wall Street."

--------12 of 14--------

[Echoes from 100 years ago - one big union, socialism, progress,
community, populism, democracy, down with capitalism and empire. Time to
bring that all back after a long snooze. The present system shows how
right they were 100 years ago. -ed]

It's Time For Workers Of The World To Unite
By Dick Meister
July 16, 2008

The globalization of capital that has undermined workers everywhere
finally has brought about moves for the globalization of labor. Finally,
unions worldwide are seriously heeding Karl Marx' plea for workers to
unite across national boundaries.

Although first voiced 160 years ago, "Workers of the World Unite!" is one
of the most important messages that the unions of today are likely to
hear. As President Andy Stern of the Service Employees Union says, Marx'
message "isn't ideological anymore. It's practical."

The need for international labor unity is great and daily growing greater.
Government policies in the United States and elsewhere have allowed
corporate employers to shift operations to poor countries, where workers
are poorly paid and have few rights because they lack effective unions and
other protections.

At the same time, there's been a flood of cheap labor into the United
States from poorer countries. That has helped hold down the pay of U.S.
workers and keep them from gaining broader rights and better working
conditions. Much of the problem has been caused by U.S. trade policies
that are designed to help the corporate interests favored by most U.S,
lawmakers and thus allow the exploitation of workers both here and abroad.

What it amounts to, simply, is that powerful multi-national corporations
- that is to say, most major corporations - are able to keep pay and
working conditions at low levels by playing one country's workforce off
against another's workforce while maximizing the corporation's profits.

In the meantime, the size of the worldwide labor force has doubled, while
the size of unions worldwide has not come even close to keeping pace. That
has severely weakened the bargaining power of unions in dealing with
global employers.

So what's to be done? How should workers of the world go about uniting?
For one thing, they should develop international standards for the
treatment of workers everywhere and jointly demand that they be followed
and that trade agreements carry provisions to protect and further workers'

Workers employed by the same corporate employers in different parts of the
world should act jointly - pool their resources, coordinate their
efforts, help each other develop strong, effective unions and global
strategies. They need to organize workers jointly and make the same
demands for decent working conditions wherever the workers are employed,
here or abroad - and enforce those demands jointly, if necessary, by
strikes and other actions.

Steps toward the globalization of labor by those and other means have
already begun. Unions, for instance, have put together an organization,
the International Trade Union Confederation, that represents more than 150
million workers in more than 150 countries. The confederation's charter
spells out its purpose and needs quite clearly: "Confronted by unbridled
capitalist globalization, effective internationalism is essential to the
future strength of trade unionism."

The confederation promises to struggle "for the emancipation of working
people and a world in which the dignity and rights of all human beings is

Just recently, the world's first global union was formed through an
alliance between America's United Steelworkers union and Unite, Britain's
largest union, which is made up mainly of factory and transportation
workers. The alliance goes by the awkward, but apt name of "Workers
Uniting: The Global Union."

The two unions, which represent workers at some companies that operate in
both the United States and Britain, will remain largely autonomous. But
they will have a joint leadership to coordinate common policy and
collective bargaining for some three million members in the United States,
Canada, Great Britain and the Irish Republic who work in virtually every
sector of the global economy - in manufacturing, service, mining and

Other recent steps toward globalization have been taken by the
Communication Workers union. It has formed a T-Workers Union for employees
of T-Mobile who work for the German-owned company in this country and in
Germany. Members will belong to both the Communication Workers and its
German equivalent.

Andy Stern's Service Employees Union has established a worldwide network
of security-guard unions as the first of what the union hopes will be a
series of organizing campaigns for workers in a variety of occupations
here and abroad.

Former labor leader and U.S. Under Secretary of Labor Jack Henning
eloquently explained why such steps are urgent and essential:

"We were never meant to be beggars at the table of wealth. We were never
meant to be the lieutenants of capitalism. We were never meant to be the
pall bearers of the workers of the world. Global unionism is the answer to
global capitalism. There is no other answer."

Dick Meister, a San Francisco writer who has covered labor issues for a
half-century as a reporter, editor and commentator. Contact him through
his website,

--------13 of 14--------

[Freddie & Fanny - the latest in the age-old story of the rich screwing
the poor with the aid of government & the courts & the media. -ed]

Rewarding the Bubble's Enablers
Why the Bail Out of Freddie Mac and Fanny Mae is Bad Economic Policy
July 15, 2008
A CounterPunch Special Report

I am writing this article about Fannie Mae and Freddie Mac while sitting
in the Queens Botanical Garden. This was not my plan today. The central
air conditioning in my apartment broke down six weeks ago and still has
not been fixed. (It's a nice condominium building, but accidents happen.)
It is over 90 degrees outside, and nearly 100 as a result of the
greenhouse effect in my apartment. Yesterday I took refuge in the Forest
Hills Public Library, but it is closed on Sunday. One of the few libraries
near public transport that normally is open on Sunday is in Flushing. So I
went there to write the final draft describing the past week's financial

Unfortunately, when I got to the Flushing library, a lady explained that
because of the city's budget cuts, the library no longer would be open on
Sundays. Already before noon, when it was supposed to open, a large number
of Chinese were waiting to get in, expecting to use the books and computer
terminals. There was no sign explaining the situation in Chinese, and they
continued to wait as I went down Main Street to the Botanical Garden.

At first glance this might not seem to have much to do with the turmoil of
the last few days over the fate of Fannie Mae and Freddie Mac or the real
estate markets they have helped inflate over the past decade. But my
experience today has everything to do with this topic. These two
semi-public mortgage-packaging companies dominate the nation's mortgage
market and have supported real estate prices by steering over $5 trillion
to enable homebuyers to bid higher and higher prices for homes, earning
billions of dollars of bonuses, profits and interest for the bankers,
mortgage brokers and Wall Street debt packagers who are the financial
beneficiaries of the real estate bubble.

And that is what really is at stake. If cities such as New York do not cut
back public services, they would have to do what they and nearly all
American cities and municipalities traditionally have done: finance most
of their public budgets by taxing property. But to do that in today's
market would leave homeowners - and commercial building owners as well -
with less revenue to pay their mortgages. Already this year over a million
debtors have defaulted on their home mortgages, and enough have now fallen
behind to suggest that Treasury Secretary Paulson's warning that two
million mortgage defaults for 2008 may be a million too low.

So that is the tradeoff: If cities are to maintain their customary level
of public services, they will have to tax property at the traditional
rate. But this would mean that housing prices would be less. The revenue
paid in taxes would not be available to pay bankers to capitalize into
interest payments on higher mortgage loans to buy homes at higher and
higher prices. Given a choice between more affordable housing and better
public service on the one hand, or "wealth creation" in the form of
higher-priced housing (along with its higher carrying charges), Americans
have voted overwhelmingly for the latter - that is, for housing so priced
it forces buyers deeply into debt, paying bankers.

To me, this seems crazy, but then I'm an economist and we're notoriously
unable to explain why people vote against what seems to be their
self-interest. In any case, this seeming craziness is what the plunging
prices for stock in Fannie Mae and Freddie Mac last week was all about.
One politician after another was televised pontificating about the need to
keep real estate at unaffordably high prices rather than falling back to
more affordable levels. Nobody mentioned the option of cities and states
avoiding public service cuts by taxing the real estate - mainly the land's
site value - that has soared since 2000. Nobody discussed how an economy
would look with lower housing prices and less mortgage debt. All they
could say was the need to preserve the value of bonds and packaged bank
mortgages held by financial institutions. These are the securities held
the economy's wealthiest 10 percent of the population. They take the form
mainly of loans to indebt the bottom 90 percent. The economy as a whole
may have no net saving, but the top 10% save - in the form of loans to the
bottom 90 percent. And they don't want the value of these loans to be cut

Debt write-downs and lower property prices would be good for most of the
economy, but are anathema to Wall Street. Bear Stearns already has gone
under as a result of its business model based on packaging junk mortgages,
and last week it looked like Lehman Bros was going down the same road. It
amazes me that the election is not being fought over this economic issue,
but I guess that's why I'm still in Dennis Kucinich's camp rather than

                     The policy question

For millions of homeowners watching the price of their homes fall below
the mortgages they owe, the question is whether to pay or default. Many
have no choice. They have Adjustable Rate Mortgages (ARMs) that are
resetting at sharply higher interest rates and require amortization
payments far beyond what the debtor is able to pay.

The looming defaults threaten financial institutions holding mortgages on
such properties, moving up the economic pyramid to reach investors and
creditors at the top. Somebody must take a loss. But who? Big fish or
little fish?

For lawmakers there are two possible policy responses. The first and
seemingly most logical response would be to re-set bad debts at levels
that can be paid. This write-down would be in keeping with the direction
of legislation since the 13th century to favor debtors more than
creditors. After all, bankruptcy laws have replaced debtors' prisons,
enabling debtors to make a full start. Truth-in-lending laws, anti-usury
laws and similar legislation have sought to balance what people earn and
what they can afford to pay for housing and other debts. This is the
balance that would be restored by writing down bad debts - or to put it
another way, writing off bad loans.

This is not the path that Congress is taking. Instead of bringing debts
within the ability to pay, its banking and real estate committees are
trying to find a way to re-inflate housing prices. The hope is to enable
existing mortgage debtors who have defaulted, or are on the brink of doing
so, to get into a position to sell out or to borrow the money due on even
easier terms from the Federal Housing Administration (FHA). This would
leave government agencies rather than Wall Street holding junk mortgages.
It would give security not to home owners and mortgage debtors but to the
lenders and speculators holding the $5 trillion in mortgages guaranteed by
the Federal National Mortgage Association (FNMA, "Fannie Mae") and the
Federal Home Loan Mortgage Corp ("Freddie Mac"), as well as the
default-insurance companies on the hook and whose IOUs have now sunk to
junk status themselves.

What is the point of buying insurance against mortgage defaults, after
all, if the insurance reserves are miniscule in comparison to the likely
default volume? The monoline insurance companies (firms whose only
business is to write default insurance) have made their money writing
policies, not paying out. Their executives have already taken the money
and run. Yet it is for their wealthy financial clients that Congressional
hearts are bleeding, not for the victims of subprime mortgage fraud and
the associated Wall Street fraud in packaging junk mortgages and selling
them to institutional investors at home and abroad.

The question is, how can an economy survive with millions of homeowners
defaulting and wealth ownership polarizing between creditors and debtors.
This is what plunged the world into depression in the 1930s, and long
before that, reduced the Roman Empire to debt bondage and serfdom.

Is it all happening again today? Or can things simply return to normal
with today's debts be paid off by borrowing yet more money and running yet
further into debt, in what is known as the "magic of compound interest"?

    The Democratic congress pushes for American families to pay higher
                              home prices

Congressional banking committee heads are simply behaving as politicians
traditionally do by giving priority to their major campaign contributors
in the financial and real estate sectors. Led by Democratic senators
Charles Schumer from Wall Street and Christopher Dodd from Connecticut's
insurance industry, and supported by Congressman Barney Frank from the
real estate sector, Congress is seeking to bail out the bubble's sponsors,
not its victims. The plan is to re-inflate the housing bubble at least
long enough for the largest banks and other financial speculators to dump
their riskiest holdings. Book values on these mortgages - and the real
estate that backs them - are purely fictitious, despite the AAA whitewash
from bond-rating agencies which themselves are now under investigation for
the fatal Arthur Anderson-style conflict of interest between their
research and sales arms.

Dealing as they do with real estate, and hence with local urban politics
where most of the property values and maneuvering occur, Fannie Mae and
Freddie Mac are largely Democratic creations. James A. Johnson ran Fannie
for most of the 1990s and was its main lobbyist. Until June he headed
Barack Obama's vice-presidential search team, but resigned when it was
revealed that he got mortgages on unrealistically favorable terms from
Angelo Mozilo's notorious Countrywide Financial. FNMA's former head,
Franklin D. Raines, was President Clinton's budget chief. He was forced to
step down when serious accounting problems were discovered. Other Fannie
apparatchiks include Jamie Gorelick, former Clinton deputy attorney
general, and Thomas E. Donilon, Clinton chief of staff to the secretary of

To be sure, political opportunism leads Fannie and Freddie to cover all
the bases, becoming known for hiring relatives of powerful politicians
wherever they may be in a position to help. But at least this time the
problem is not George Bush's fault. The Wall Street Journal seems closer
to reason than the Democratic Congress. Over the weekend its editorial
clarified what socialists since Marx have been saying: "What taxpayers
need to understand is that Fannie and Freddie already practice socialism,
albeit of the dishonest kind. Their profit is privatized but their risk is
socialized". Calling FNMA and Freddie "high-risk monsters," the newspaper
noted that "Wall Street and the homebuilders also cashed in on the
subsidized business, and also paid back Congress in cash and carry". It
concluded by questioning whether these government-sponsored enterprises
(GSEs) were justified at all. "Apart from outright failure, the worst
scenario would be a capital injection that left the companies free to
commit the same mayhem all over again two or 10 years from now".

In a separate article the Journal noted that, "On a fair-value basis, the
company [Freddie Mac] had negative net worth of nearly $17 billion". The
problem is that there is no "market" - that is, no supply of equally
gullible buyers - to take on these bad loans, except at distress prices.
Through short-term greed and incompetence, the home-debt industry has
pawned off highly debt-leveraged mortgage loans drawn up from fraudsters.
They can't be called crooks exactly, because instead of being indicted,
they have been rewarded with tens of millions of dollars in bonuses for
making so much money as debt innovators for the finance, insurance and
real estate sectors.

Their place is to be taken by the government as bad-debt buyer of last
resort. I suppose this might be called Finance Socialism - the stage at
which it becomes necessary to rescue Finance Capitalism, at least its
largest institutions ("too large to fail") at the top of the economic
pyramid. Or it might be called "real estate finance capitalism". But in
Washington-talk it is euphemized in the Democratic Party's usual populist
garb as "democratizing property" and "increasing homeownership," by which
is meant indebting a rising share of the population to the point where
carrying their mortgage absorbs most of their disposable personal income.

            Can a new real estate bubble be inflated?

The fact remains that like every financial bubble in history starting with
England's South Sea Bubble and France's Mississippi Bubble in the 1710s
nearly three centuries ago, today's bubble has been sponsored by the
government. Forget the "madness of crowds" free-market propaganda.
Insiders and enabling politicians always try to blame the victim. The
reality is that Fannie, Freddie and the FHA gave a patina of confidence to
irresponsible lending and outright fraud. This confidence game led them to
guarantee some $5.3 trillion of mortgages, and to keep $1.6 trillion more
on their own books to back the bonds they issued to institutional
investors. Their strategy has been to issue bonds paying fairly low
interest rates, and use the proceeds to buy mortgages yielding somewhat
higher rates. This kind of interest-rate arbitrage is what the S&Ls did in
the 1980s - a relevant parallel, as I will discuss below.

The myth is that Fannie's and Freddie's role is simply to spread
homeownership by making it affordable for more of the population. Fannie
Mae was established in the Depression, in 1938 as part of Roosevelt's New
Deal, and privatized in 1968. Freddie Mac was established two years later,
in 1970, to buy up S&L mortgages and give "liquidity" to their mortgages,
by developing markets beyond the banks and S&Ls that originated these
loans. But this turned out to be the "original sin," so to speak. Non-bank
investors were obliged to place their trust in the mortgage originators -
banks, S&Ls and mortgage brokers, whose ranks are filled with fraudsters
and crooks.

Whatever we may call it, their dream is to bring back the seeming golden
age sponsored by Alan Greenspan at the Federal Reserve. It was a decade of
quick mortgage billionaires writing fictitiously high mortgages and
selling them off to pension funds and to German and English bankers eager
to seek a few extra fractions of a percentage point in current income so
as to justify a big bonus by claiming to outperform more reality-based
money managers.

All this is as American as apple pie. Altruistic political talk aside, the
reason why the finance, insurance and real estate (FIRE) sectors have
lobbied so hard for Fannie and Freddie is that their financial function
has been to make housing increasingly unaffordable. They have inflated
asset prices with credit that has indebted homeowners to a degree
unprecedented in history. This is why the real estate bubble has burst,
after all. Yet Congress now acts as if the only way to resolve the debt
problem is to create yet more debt, to inflate real estate prices all the
more by arranging yet more credit to bid up the prices that homebuyers
must pay. The plan is thus to pretend that the Bubble Economy's financial
unreality may be made real by Finance Socialism.

Can the plan work? The reason why Fannie and Freddie have been able to
borrow at lower rates than their rivals is because their public
sponsorship led investors to believe that there was an implicit public
guarantee not to let them fail. And in view of the fact that these two
agencies account for some $5 trillion in mortgages - nearly half the
nearly $12 trillion U.S. home mortgage market - they do indeed seem to be
"too big to fail". The face value of mortgages they have guaranteed is
nearly as large as the entire U.S. federal debt held by the public. This
means that the nominal federal debt would double if they went under. But
at least the government can always print money, while the real estate
backing the mortgages guaranteed by Fannie and Freddie (or held in their
own accounts) is plunging in price into the dreaded Negative Equity

But on their shoulders ride the hope of re-inflating housing prices to
bail out the financial managers who sought to make money by debt creation
rather than tangible capital formation. So the question is whether housing
prices can be raised to a level that oblige families to run into even more
debt than they now are carrying - with even lower down payments,
subsidized at public expense.

In this case the subsidy would not really be for homeowners at all, but
for the financial system's mortgage holders. The aim would not be to make
housing more affordable, but less so, because the debts would be larger!

Most investors view the situation as being more political than strictly
economic. One hears again and again these days about the "implicit"
government guarantee to make good on the bonds Fannie and Fred issued to
fund these junk mortgages. Its constant repetition reflects the anxiety
that bondholders feel about how sound their bond holdings really are. (The
stocks of Fannie and Freddie have now plunged to less than 10 percent of
their former highs. Investors obviously expect their equity to be wiped
out, a la Bear Stearns.)

The word "implicit" means "not explicit". There is a tantalizing hint of
what might be, but does not yet exist in a legal sense. Financial free
lunchers on Real Estate Finance Capitalism claim to be innocent victims of
an "unexpected" bad turn in the market. (Bad news always is "unexpected"
as far as financial spokesmen and media reporters are concerned, just as
Claude Rains was "shocked, shocked" to find that there was gambling going
on at Rick's Cafe.)

The distinction between implicit and explicit may be too philosophical for
most money managers who work in the financial institutions that have
bought Fannie Mae and Freddie Mac bonds and packages of junk mortgages.
Most of these apparatchiks don't need much of an education. All they need
is greed, and that can't be taught. It is an addiction - and on Wall
Street it lives in the short run, from one annual bonus to the next.

Wall Street bonuses are based on how well one "performs" relative to the
norm - a Treasury bond's rate of return, or the average mutual fund or
money market fund. Anyone can out-perform these averages simply by buying
the most risky and hence highest-yielding bonds around.

           Predator vs. victim - who will Congress support?

On the subway to my hoped-for cool spot in Queens, I opened today's Sunday
New York Times to find an article by the always informative Gretchen
Morgenson about a Countrywide Financial customer saddled with an
adjustable-rate mortgage re-setting at a rate beyond his means to pay. The
mortgagee got so frustrated with non-responses to his earlier attempts at
communication that he sent an e-mail message to a block of Countrywide
addresses asking to renegotiate his mortgage on more affordable terms so
as to avoid default. This is what Henry Paulson has been urging
"responsible" lenders to do - and Countrywide is responsible for some $1.5
trillion in mortgage loans, most of them subprime.

The e-mail actually got to Countrywide co-founder and CEO Angelo Mozilo,
cited above for having given GNMA head and erstwhile Obama advisor a
mortgage on remarkably affordable terms. Mr. Mozilo is the Darth Vader of
the global mortgage market, and the person probably more responsible than
any other for wrecking more lives financially than any other man on the
planet, including Ken Lay and Michael Milken. Until the movie biography
arrives, we will have to do with Ms. Morgenson's article.* (*"The Silence
of the Lenders," The New York Times, July 13, 2008.)

Mr. Mozilo actually responded. He found the request to lower his company's
mortgage demands "Disgusting". The very thought of debtors not living up
to written contracts they had signed - contracts which turned out to be
bait-and-switch deals signed under duress - seemed to threaten the
institution of private property itself. After all, had not the mortgage
agreed to "adjust" his teaser interest rate upward to a more real-world
rate of extracting his income?

A Countrywide "workout advisor" on the company's "home retention team"
tried to be more helpful. She suggested that "Maybe you can eat less,"
when the mortgagee told her that all he could afford was $10 a day after
paying his mortgage.

Perhaps my mind was wandering too far, but I was reminded of Sumerian and
Babylonian language for creditors. Contracts said that they would get to
"eat" the interest on debts owed by cultivators and debtors. Bronze Age
contracts from Hammurapi's time (c. 1750 BC) typically called for rural
debtors to pay their debts in grain (which exchanged on a par with silver,
one liter of grain per shekel of silver), weighed out at harvest time on
the threshing floor. Post-classical economic theory is based on the
principle of diminishing marginal utility. According to this theory, the
pleasure of consuming more of any given commodity diminishes with each
additional unit that is consumed. This seemed to suggest that as people
got wealthier, they would become less greedy, leaving the path open for
the poorest consumers to "catch up". It was a happy picture of economies
leading naturally and almost automatically to a more equal distribution of

Of course, it was utter fiction. But it was a "successful error" that won
for the marginal utility school such enormous financial subsidies for
economics departments teaching this distraction that it drove classical
economics off the board with its discussion of unearned increments, free
lunches and the polarization of wealth by rentiers (a word that today is
almost as anachronistic as "usurer").

Obviously, these marginal utility theorists never heard of the wealth
addiction that Aristotle and other ancient observers described. How much
can a creditor "eat" in practice? The answer is, "everything"! That is
what wealth addiction is all about.

It is implicit in the mathematics of the "magic of compound interest".
This is the magic that has causing the real estate crisis plunging Fannie
Mae, Freddie Mac and Lehman Bros. to the brink of insolvency.

  A replay of the federal S&L insurance crisis: Bailing out the
               risk-takers, not their victims

Junk bonds issued by corporate raiders were the highest-yielding bonds in
the 1980s - before they brought down the S&Ls. Since the Federal Reserve
flooded the economy with credit after the bubble burst in 2000,
junk mortgages have been the highest-yielding securities. Meanwhile at the
Federal Reserve, Chairman Alan Greenspan deregulated the banking system to
let the usual array of financial crooks express the "animal spirits" that
he believed were the driving force in his Ayn Rand fantasy world.

The result is a replay of the S&L collapse two decades ago - a financial
"golden oldie," so to speak. The S&L bailout is relevant today because
proposals to bail out FNMA and Freddie Mac bondholders are distressingly
like the bailout of S&L depositors in crooked S&Ls back in the 1980s. Only
a handful of S&Ls went under - and they were the notorious risk-takers.
Their depositors were not neighborhood moms and pops. They were large
institutional savers, who didn't care about risk or crooked behavior,
because there was a government guarantee by FSLIC: the Federal Savings and
Loan Insurance Corporation. And that bailed out the large depositors.

Fast forward to today. FNMA was shown many months ago to have been cooking
the books. But large speculators didn't care. Although there was no
official government guarantee, there was an "implicit" protection for
risk-takers. Financial insurance firms sharply raised the
default-insurance premiums for these two government-sponsored mortgage
agencies. But investors still were able to make a few basis points more
than normal by buying their bonds.

Should they be bailed out? And if the government does not do so, would
this mean that FNMA goes under and the US mortgage market plunges?

       Do we really want a new bubble? Or re-industrialization?

Let's take a step back and look at the function that Fannie and Freddie
have played in today's Bubble Economy.

Who would one expect the Fed as "board of directors" for the commercial
banking system, the Federal Housing Agency (FHA), FNMA and Freddie Mac as
creatures of the real estate sector, to support? Ostensibly created to
serve "the people," 90 percent of whom are debtors, these institutions
actually back the 10 percent of the population who are creditors.

This year already has seen a million foreclosures and the junk mortgage
collapse is worsening. Home prices are plunging as interest rates on the
euphemistically named adjustable rate mortgages (ARMs) "adjust" in the
only direction they ever were intended: jumping up from teaser rates to
distress levels. It is more difficult to borrow in today's market. The
economy has reached its debt limit and is entering its insolvency phase.

We are not in a cycle but the end of an era. The old world of debt
pyramiding to a fraudulent degree cannot be restored, despite the repeal
Glass-Steagall Act in 1999 that unleashed financial conflicts of interest
when the Clinton Administration backed Treasury Secretary Robert Rubin and
financial lobbyist Greenspan in claiming that financial markets would be
self-regulating and law-abiding. The real estate bubble was made possible
by the unique degree to which America's population emerged from World War
II relatively debt free. Each recovery has taken off from a higher debt
level. This something like trying to drive a car with the brakes pressed
tighter and tighter to the floor each time there is a stoplight
(recession). We have now reached the debt limit, and the economy is stuck.
The class war is back in business, with a vengeance. Instead of it being
the familiar old class war between industrial employers and their work
force, this one reverts to the old pre-industrial class war of creditors
versus debtors. Its guiding principle is "Big Fish Eat Little Fish,"
mainly by the debt dynamic that crowds out the promised economy of free

This is being portrayed as a post-industrial economy, but it is a much
older story. No economy in history ever has been able to pay off its
debts. That is the essence of the "magic of compound interest". Debts grow
inexorably, making creditors rich but impoverishing the economy in the
process, thereby destroying its ability to pay. Recognizing this financial
dynamic most societies have chosen the logical response. From Sumer in the
third millennium BC and Babylonia the second millennium through Greece and
Rome in the first millennium BC, and then from feudal Europe to the
Inter-Ally war debts and reparations tangle that wrecked international
finance after World War I, the response has been to bring debts back
within the ability to pay.

This can be done only by wiping out debts that cannot be paid. The
alternative is debt peonage. Throughout most of history, countries have
found again and again that bankruptcy - wiping out the debts - is the way
to free economies. The idea is to free them from a situation where the
economic surplus is diverted away from new tangible investment to pay
bankers. The classical idea of free markets is to avoid privatizing
monopolies, such as the unique privilege of commercial bankers to create
bank-credit and charge interest on it.

Current proposals would replace bad debts that are not publicly insured
(except by an "implicit" guarantee that relevant legislators have bought
into) with new debts, and new suckers are to be left holding the bag.
Bahrainis and Saudis in particular are being courted.

But most of all, there is a public campaign being waged by the FIRE sector
(Finance, Insurance and Real Estate) to convince the American public that,
in the infamous words of Margaret Thatcher, TINA, "there is no
alternative". (See for instance the Wall Street Journal's excellent
coverage of the FNMA/mortgage crisis on July 11, 2002, p. A12.) When one
hears this, it means that political censorship is being mobilized to flood
the popular media with the intellectual equivalent of sterile fruit flies
being released to stop the spread of a threat. All one hears is a barrage
of claims that the government must preserve the financial fictions of FNMA
and Freddie Mac in order to "save the market".

But what is "the market" that is to be "saved"? To Wall Street and its
Congressional advocates, it is the mass of bad debts growing at compound
"magic" rates of interest, beyond the ability of debtors to pay. If the
debtors cannot pay, then the Government - "taxpayers" are to pick up the
check to Wall Street. Meanwhile, more tax breaks are to be given to leave
the finance, insurance and real estate sectors with enough money to "earn
back" their losses, by extracting yet more rent and interest from the
industrial economy's consumers and wage-earners.

The usual hypocrisy is being brought to bear claiming that all this is
necessary to "save the middle class," even as what is being saved are its
debts, not its assets. Something must give - and the upper 10 percent of
the population wants to make sure that it is not its own economic
position, but that of the bottom 90 percent. The "way of life" that is
being saved is not that of home ownership, but debt peonage to support the
concentration of wealth at the top of the economic pyramid.

                     My modest proposal

Shareholders of FNMA and Freddie Mac probably will be wiped out, as were
S&L shareholders in the bailout of S&L depositors in the 1980s. There's a
simple way to save FNMA's and Freddie's public functions, if they indeed
are deemed necessary to keep supporting the debt market. This can be done
without bailing out the speculators who bought the mortgages it packaged.

First of all, not all the mortgages that these two agencies have bought or
guaranteed are junk. Most are genuine and are being paid. The poor are
honest, after all, and think that they should pay as a matter of honor
even if it is not in their economic interest to do so when their homes
fall into negative equity. Let these mortgages continue to back the
existing FNMA and Freddie Mac bonds to the degree that they actually
receive mortgage debt service. If there is a shortfall, let bondholders
take the usual haircut that is supposed to go hand in hand with risk. That
is why these mortgages had such high rates of interest, after all. The
loss would be proportional to the financial and real estate fraud they
have enabled. This is the law for all other bondholders when their
investments go south. Why make an exception for participants in the real
estate bubble?

The rule caveat emptor should apply to bankers and investors here. They
have bought a product - a flow of income that they either believed or
pretended could be paid. Any student taught the mathematics of compound
interest knows that in the end no economy's debts can be paid. So this
should be a special financial caveat.

To keep their activities current, let Fannie and Freddie issue a new
series of bonds - the "we won't fake it anymore" series. They would be
based on a new honesty based on more realistic appraisals of the
affordability of housing, which they were supposed to be promoting all
along. These steps would not cause a collapse.

But before stepping up to save FNMA and Freddie Mac, we might ask whether
it would be a tragedy for their debt guarantees to cease. Wall Street has
given politicians a cover story that to support FNMA and Freddie on the
pretense that its packaging and reselling mortgages in big "tranches"
provides liquidity. Its defenders claimed to be "modernizing" the real
estate mortgage market by creating uniform standards and homogeneous
packages. But these packages were increasingly tainted with junk, putting
floor sweepings of ARMs with no-down-payment and NINJA (no income, no job)
loans into financial sausages.

What Fannie and Freddie did was to provide a vast new source of demand for
mortgages. Their role has been to extend the market for mortgage debt,
creating opportunities to make money financially in an environment of
asset-price inflation - the Bubble Economy. The effect was to push up
housing prices. This has been the great American game for a century. And
it has turned increasingly to outside investors (including gullible German
banks which were the first to go bust by trusting the U.S. junk mortgage
market), swelling the supply of loanable funds that bid up property

Prior to FNMA and Freddie Mac, banks that issued mortgages held onto them,
because there were no outside blind buyers. This was the pre-fraud era. It
is now looking like a Golden Age. Housing prices were lower, and buyers
did not have to go so deeply into debt to purchase homes. But the Senate
and Congress - at least the Democrats - are urging the FHA and other
government agencies to prop up the mortgage market by issuing
zero-down-payment loans and other subsidies. The immediate aim is not to
help homeowners - who indeed will have to pay more if the housing market
re-inflates. Each new economic crisis adds a few new words to the English
language. This time we get "reflate". Others include NYU Prof. Roubini's
"stagdeflation" for a combination of debt deflation of incomes and price
inflation for commodities as the dollar sinks in response to the
balance-of-payments deficit resulting largely from the war in Iraq. But
that is another story. Today's story is about how Congress is aiming to
bail out the banks that have bought or packaged these junk mortgages,
about how needless this bailout is, and about how much simpler and more
fair to just write off the bad debts.


America's $13 trillion in domestic real estate debt is no more payable
than  is the government.s $3.5 billion dollar debt to foreign central
banks, or the public debt itself for that matter. Adam Smith remarked over
two centuries ago that no government ever had repaid its debts. At that
time the aristocracy - the heirs of the Viking warlords who conquered
Britain and other European countries and turned their common lands into
private property - held most of the land free and clear. Today, real
estate has been "democratized," but this has been done on credit.
Mortgages are the major debts of most American families. In this role,
real estate debt has become the basis for the commercial banking system,
and hence the basis for the wealthiest 10 percent of the population who
hold the bottom 90 percent in debt. That is what Fannie Mae, Freddie Mac
and "the market" are all about.

Neither party in Congress supports a new bankruptcy bill. The lobbying
money simply isn't there. So the preferred alternative seems to be a new
real estate bubble, which means more debt peonage for new homebuyers
rather than housing prices falling back to more affordable proportions.

Of course, there is an alternative (TIAA). It is to make rent the basis of
the tax system instead of being the basis for expanding debt to the banks.
Real estate could free labor and industry from having to pay taxes.
Instead, un-taxing property has forced labor to bear the tax burden, and
to pay an equivalent sum in interest to the banks as well.

But that is a topic for a future article.

Michael Hudson is a former Wall Street economist specializing in the
balance of payments and real estate at the Chase Manhattan Bank (now
JPMorgan Chase & Co.), Arthur Anderson, and later at the Hudson Institute
(no relation). In 1990 he helped establish the world's first sovereign
debt fund for Scudder Stevens & Clark. Dr. Hudson was Dennis Kucinich's
Chief Economic Advisor in the recent Democratic primary presidential
campaign, and has advised the U.S., Canadian, Mexican and Latvian
governments, as well as the United Nations Institute for Training and
Research (UNITAR). A Distinguished Research Professor at University of
Missouri, Kansas City (UMKC), he is the author of many books, including
Super Imperialism: The Economic Strategy of American Empire (new ed.,
Pluto Press, 2002) He can be reached via his website,
mh [at]

--------x of 14--------


 Freddie and Fanny
 went up the hill to fetch a
 pail of watered stock.

 Freddie fell down and
 broke our town, and Fanny came
 tumbling after.

 Freddie Mac stepped on
 a crack broke his country's back;
 Fanny Mae follow.

 Freddie Mac he gave
 us the sack and friend Mae she
 gave us her Fanny.

 Big Mac - Over 6
 Gazillion Stold. Watch for the
 next big Mac Attack.

 Freddie is into
 trickle down - Fanny favors
 large brown projectiles.


   - David Shove             shove001 [at]
   rhymes with clove         Progressive Calendar
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