Wednesday, September 10, 2008

There's No Fool Like a Greater Fool

Well, well. We, collectively, are the Greater Fool:
The greater fool theory ... is the belief held by one who makes a questionable investment, with the assumption that they will be able to sell it later to "a bigger fool"; in other words, buying something not because you believe that it is worth the price, but rather because you believe that you will be able to sell it to some one else for an even higher price.
In this case, the "greater fool" theoretician-investors were perfectly correct in thinking that there would, eventually, be a corps of idiots available to populate the layer below them on the pyramid, because Uncle Sugar is able to draft you and I for the purpose:
Fannie and Freddie were chartered by Congress, and so historically, investors — especially foreign ones — have bought their debt because they believed it was backed by the full faith and credit of the United States, akin to Treasury bonds.

The takeover makes that guarantee explicit for the time being. Paulson said the issue of whether there should be a government guarantee would have to be resolved: "We're going to have to decide whether we want to have government support for private profit."
And that's a neat summary of state capitalism for you, right there. It combines the worst of both worlds: it's collectivist in the sense that every man's supposed property is "his" only at State sufferance; but it differs from full-up Marxism in that it provides explicity for the reaping of profits by private individuals who are favored by the State. Who are these favored folk? From my position in the dark recesses of the mushroom farm, I cannot say. It's clear, though, that the sources of the swag must be many, and the recipients few; otherwise, the game doesn't work. One thing that you and I, gentle reader, can be sure of is that each of us has a slot to fill in the bottom level of the pyramid. I'm no enthusiast for Brother Karl Marx, but I can't dispute that a lot of what we see around us is easier to understand in the context of a class analysis than in any other way. Leona Helmsley is supposed to have said, "Paying taxes is for the little people." However much (or little) truth may have been in that, I think we're going to see that ownership in the twin pigpiles of Fannie and Freddie is also going to be for the little people.
Treasury Secretary Henry Paulson told NPR that the primary reason for the rescue was the discovery of a "capital deficiency that needed to be addressed." In other words, they didn't have an adequate cushion against further losses in the deteriorating housing market.

Paulson said that investors have become "increasingly jittery here and around the world" and unwilling to provide added capital for Fannie and Freddie. He said the action was taken to ensure the continued availability of mortgages and to protect taxpayers. Currently, Fannie and Freddie are providing financing for more than two-thirds of all mortgages originated in the U.S.
"Increasingly jittery." That's one way of putting it, I suppose; "smart enough to read the writing on the wall" might be another. Clearly, we're at a point where the available swag has already been looted, and few are foolish enough to voluntarily join the party. The hour has come for the Greater Fool to make his appearance.

Hello, fellow fool!

1 comment:

lemming said...

My uninformed prediction is that the economy will go further down before it goes up again. We as people and as a nation have been living on credit and now we have to pay up. There's only so far the government can go to prop us up.