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Vocapedia > Economy > Economic policies > Regulation / Deregulation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

state monopoly

 

 

 

 

nationalisation        UK

https://www.theguardian.com/business/2008/feb/18/northernrock 

 

 

 

 

partial nationalisation        UK

https://www.theguardian.com/business/2008/oct/08/
creditcrunch.banking4 

 

 

 

 

nationalise / nationalize    (USA) 

https://www.theguardian.com/business/2008/feb/17/northernrock.nationalisation 

 

 

 

 

regulation        USA

http://www.nytimes.com/2014/03/22/
business/murray-l-weidenbaum-reagan-economist-dies-at-87.html

 

http://thecaucus.blogs.nytimes.com/2011/01/18/
obama-orders-review-of-business-regulations/

 

http://www.nytimes.com/2008/10/24/
business/economy/24panel.html

 

http://online.wsj.com/article/SB120631764481458291.html?mod=hpp_us_pageone

 

 

 

 

Financial regulatory reform        USA

http://www.nytimes.com/topic/subject/financial-legalregulatory

 

http://www.nytimes.com/2011/06/14/
opinion/14tue1.html

 

 

 

 

protectionism

http://www.nytimes.com/2009/09/19/
opinion/19sat1.html

http://www.reuters.com/article/topNews/idUSTRE51C5DU20090213

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

deregulation        USA

http://www.nytimes.com/2014/03/22/
business/murray-l-weidenbaum-reagan-economist-dies-at-87.html

 

http://www.nytimes.com/2013/08/17/
opinion/nocera-merge-is-what-airlines-do.html

http://www.princeton.edu/~achaney/tmve/wiki100k/docs/Airline_Deregulation_Act.html

 

 

 

 

neoliberalism        UK

https://www.theguardian.com/news/2017/aug/18/
neoliberalism-the-idea-that-changed-the-world

 

 

 

 

Murray Weidenbaum        USA        1927-2014

 

as President Ronald Reagan’s

first chief economic adviser

(Murray Weidenbaum)

elevated government regulation of business

to the forefront of public policy debate

 

(...)

 

Reducing the size of government

and lightening its regulatory hold on the private sector

— including the banking, broadcasting

and the food and drug industries —

became a large theme of the Reagan presidency,

which began with inflation still running in double digits

and the economy heading into recession.

 

Deregulation, the White House believed,

would help stimulate the economy

by reducing the government rules and restrictions

that industries say hamper their ability

to expand and create jobs.

 

But the policy’s critics

feared that an unfettered private sector

could be dangerous to the economy

and the public interest.

 

At the heart of what came

to be known as Reaganomics

was the proposition that the nation

could be restored to economic health

through fiscally stimulating tax cuts

— the essence of supply-side economic theory —

and by restricting the money supply to contain inflation.

 

Critics of the administration

called that combination contradictory.

http://www.nytimes.com/2014/03/22/
business/murray-l-weidenbaum-reagan-economist-dies-at-87.html

 

 

 

 

deregulate

http://www.nytimes.com/2013/08/17/
opinion/nocera-merge-is-what-airlines-do.html

 

 

 

 

Reaganomics

www.nytimes.com/2014/03/22/
business/murray-l-weidenbaum-reagan-economist-dies-at-87.html

 

https://www.theguardian.com/business/2003/apr/20/
globalrecession.globalisation 

http://www.time.com/time/magazine/article/0,9171,924952,00.html

 

 

 

 

free market        UK

https://www.theguardian.com/news/2017/aug/04/
how-britain-fell-out-of-love-with-the-free-market

 

 

 

 

free market > education        USA

http://www.npr.org/sections/ed/2016/12/07/
504696506/trumps-pick-for-education-a-free-market-approach-to-school-choice

 

 

 

 

 

free-marketeers        UK

https://www.theguardian.com/commentisfree/2008/jan/23/
economy.politics 

https://www.theguardian.com/business/2008/dec/14/
keynesian-economic-recovery-brown-germany 

 

 

 

 

free-market fundamentalists        USA

http://www.nytimes.com/2010/12/20/
opinion/20krugman.html

 

 

 

 

free trade

 

 

 

 

 

 

 

 

 

 

 

 

 

 

privatise

 

 

 

 

privatisation        UK

https://www.theguardian.com/politics/privatisation

 

http://www.theguardian.com/politics/2014/aug/22/
sale-of-century-privatisation-scam

http://www.theguardian.com/commentisfree/2014/may/06/
privatisation-land-registry-east-coast-rail-public-assets

 

 

 

 

partial privatisation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

break-up

 

 

 

 

sell off        UK

http://www.theguardian.com/business/2006/nov/04/
britishairways.theairlineindustry

 

 

 

 

sell-off

 

 

 

 

 

 

 

 

 

Murray L. Weidenbaum,

Reagan Economist,

Dies at 87

 

MARCH 21, 2014

The New York Times

By ROBERT D. HERSHEY Jr.

 

Murray L. Weidenbaum, who as President Ronald Reagan’s first chief economic adviser elevated government regulation of business to the forefront of public policy debate, but resigned unhappy about the administration’s budget-making, died on Thursday in St. Louis. He was 87.

His son, Jim, confirmed the death.

Mr. Weidenbaum, a Bronx-born economist, was fond of saying, “Don’t just stand there, undo something.” And he did, beginning in 1981, when the newly inaugurated Mr. Reagan appointed him chairman of the Council of Economic Advisers.

Reducing the size of government and lightening its regulatory hold on the private sector — including the banking, broadcasting and the food and drug industries — became a large theme of the Reagan presidency, which began with inflation still running in double digits and the economy heading into recession.

Deregulation, the White House believed, would help stimulate the economy by reducing the government rules and restrictions that industries say hamper their ability to expand and create jobs. But the policy’s critics feared that an unfettered private sector could be dangerous to the economy and the public interest.

At the heart of what came to be known as Reaganomics was the proposition that the nation could be restored to economic health through fiscally stimulating tax cuts — the essence of supply-side economic theory — and by restricting the money supply to contain inflation. Critics of the administration called that combination contradictory.

Mr. Weidenbaum, a wry and slightly rumpled figure who had long shuttled between government and academic posts, previously at Washington University in St. Louis, proved to be one of the administration’s least doctrinaire members, neither full-throated supply-sider nor strict monetarist.

“I was sympathetic to both,” Mr. Weidenbaum said in a 2011 telephone interview for this obituary. But neither side “thought I was one of them.”

He was also a prominent advocate of federal revenue-sharing, involving no-strings payments to states and localities. As an assistant secretary of the Treasury under President Richard M. Nixon, he had led a revenue-sharing initiative, which was briefly effective. But he wound up helping President Reagan dismantle the program when revenue sharing did not displace a proliferation of separate grants and payments to state and local governments voted for by Congress.

Though fiscally conservative, Mr. Weidenbaum was more moderate than some of his peers in the White House. He was generally aligned with administration pragmatists like the budget director, David A. Stockman, and the chief of staff, James A. Baker III. They favored compromising with Democrats in Congress on raising tax revenue and cutting military spending because of their concern about deficits.

Internal battles over budget deficits were a hallmark of the administration in those years.

Mr. Weidenbaum, in the 2011 interview, said he left the administration after a year and a half precisely because he was unhappy with the 1983 budget, and chose to quit rather than defend it before Congress.

Stepping down in August 1982, a time when Mr. Reagan’s popularity had plummeted and the country was sinking into a deep recession, Mr. Weidenbaum was replaced by Martin S. Feldstein.

“After fighting the good fight, I quietly folded my tent and returned to St. Louis,” Mr. Weidenbaum said.

But he left satisfied. In an Op-Ed article in The New York Times afterward, he wrote that the administration had “achieved significant progress in carrying out its economic recovery program” and that its deregulation efforts had been successful.

“For the first time in decades, no new major regulatory activities were enacted or promulgated,” he wrote. “In fact, many burdensome regulations were modified or rescinded.”

Mr. Weidenbaum also expressed general satisfaction with the administration’s policy in a 2005 memoir, “Advising Reagan: Making Economic Policy, 1981-82.”

“It seems clear that, on balance, Reaganomics was a success,” he wrote. “The president’s policies had injected a new sense of realism into the decision making in the private sector,” as both management and workers paid more attention to controlling costs and raising productivity.

Murray Weidenbaum (the first syllable rhymes with “feed”) was born on Feb. 10, 1927, into a liberal Democratic household in the Bronx. He graduated from Erasmus Hall High School in Brooklyn and the City College of New York, where he was elected president of the student body on a platform of “Wine, Women and Weidenbaum.”

Mr. Weidenbaum received a master’s degree from Columbia University, then joined the New York State Department of Labor as a junior economist. At the time, like his family, he held union-friendly views, and saw labor as the little guy at the mercy of big business. But he grew disillusioned with the labor cause after being assigned to a statistical analysis of a master contract for the Teamsters union. His encounter with an independent trucker who had vainly sought to negotiate on his own was a pivotal moment.

“The roles were reversed,” he said. “The little employer was dealing with the giant union.”

Laid off under New York State’s “last in, first out” policy, he found work in Washington at the Bureau of the Budget. During a leave to pursue doctoral work at Princeton, he met Phyllis Green. They married in 1954.

Besides his son, Jim, he is survived by two daughters, Laurie Stark and Susan Juster-Goldstein, and six grandchildren.

After marriage, he began a life characterized by the title of a 2009 autobiographical monograph, “Vignettes From a Peripatetic Professor,” moving among academia, government, industry and research institutes in Washington and elsewhere.

Mr. Weidenbaum had an early, formative stint in the military industry. The General Dynamics Corporation in Fort Worth hired him as an economist and had him analyze the operations of the B-58 supersonic bomber. Moving to Boeing, in Seattle, he developed forecasts of the military market.

The jobs exposed him to the numerous rules military contractors were subject to, underscored by the full-time presence of inspectors stationed in the factories.

“There’s more government regulation of the defense industry than any other,” Mr. Weidenbaum said in the 2011 interview, adding that complaints were seldom voiced for fear of offending the main customer, the government itself.

After Boeing, he moved to the Stanford Research Institute in California to continue studying the military industry.

That was followed by a turn in Washington as the staff director of President Lyndon B. Johnson’s Council of Economic Advisers.

He moved to St. Louis in early 1975 when Washington University created the Center for the Study of American Business and recruited him to be its first director. He was there when Mr. Reagan lured him back to the White House.

Mr. Weidenbaum later served on boards and government commissions, including one on clean air initiatives formed by President George H. W. Bush, and he continued as director of the Washington University business institute. In 2001 it was renamed the Weidenbaum Center on the Economy, Government and Public Policy.

The center gave him a platform from which to express his views on deficit spending — “I conclude that deficits do not matter, but that Treasury borrowing and money creation surely do” — and on military spending and other economic matters. It also gave him an opportunity to display his dry sense of humor.

Speaking at the center’s annual policy conference in October 1982, he remarked, “At a time when, alas, economist jokes are in vogue, I would like to add my favorite wisecrack about our profession: If all the economists in the world were laid end to end, it might be a good thing.”

 

A version of this article appears in print on March 22, 2014,

on page A22 of the New York edition with the headline:

Murray L. Weidenbaum, Reagan Economist, Dies at 87.

Murray L. Weidenbaum, Reagan Economist, Dies at 87,
NYT,
21.3.2014,
http://www.nytimes.com/2014/03/22/
business/murray-l-weidenbaum-reagan-economist-dies-at-87.html

 

 

 

 

 

Both Sides of the Aisle

See More Regulation

 

October 14, 2008

The New York Times

By JACKIE CALMES

 

WASHINGTON — For 30 years, the nation’s political system has been tilted in favor of business deregulation and against new rules. But that is about to change, now that the government has been forced to intervene in the once high-flying financial industry to avert an economywide crash.

An expansion of the government’s role in financial markets is certain: on Friday the Treasury Department updated its recommended reforms of the existing regulatory structure, which it will leave to the next president and Congress.

Congressional leaders and both presidential candidates already have their own, more far-reaching ideas, from further restricting executives’ pay to remaking the entire regulatory structure so that it better supervises both traditional activities and newer ones like credit-default swaps that are unregulated.

But the pro-regulation climate will probably spill over into other sectors. That seems especially likely now that the Treasury and the Federal Reserve are pumping money into corporations of all types to shore up their capital and to finance day-to-day operations until credit markets recover, and with the auto industry separately getting billions in government assistance.

That will give impetus to those who seek new emission curbs and energy limits to address climate change; or who want health care mandates to expand insurance coverage and restrain costs; or who are calling for new safeguards for food, prescription drugs and toys from China and other less-regulated trading partners.

“We now have a collective anger, disgust, over our whole financial system and it’s obvious we’re going to get a regulatory backlash,” said Robert E. Litan, an economist at the Brookings Institution who has studied financial and regulatory issues for decades. “And we know it’s going to come in a big way in 2009.”

Mr. Litan predicts a spillover effect to other industries because voters have the perception that “big companies are animals and they need to be put in their cages.”

He added: “The only open question going forward in this new era is, are we going to overdo it? Is the pendulum going to go completely over in the other direction?”

Whatever policies result, the political fallout of this renewed respect for government regulation is evident in the current election campaigns.

Democrats, who typically have been on the defensive in recent decades as the more pro-regulatory party, now are playing offense. Senator Barack Obama, the Democratic presidential nominee, is leading his party’s charge, blaming Republicans and their candidate, Senator John McCain, for the lax oversight that contributed to the financial crisis. Mr. Obama recently charged that Mr. McCain supported an economic theory “that basically says that we can shred regulations and consumer protections.”

Mitch McConnell, the Senate Republican leader, who is unexpectedly fighting for re-election in Kentucky, is the target of a television ad that says, “Wall Street and the big banks gave Mitch McConnell $4.4 million for his campaigns, and he fought for less regulation of Wall Street.”

Yet Republicans, led by Mr. McCain, are promising that they, too, will support toughened government regulations. “I think we’re going to have to see smarter regulation,” Mr. McCain’s chief economic adviser, Douglas Holtz-Eakin, said in an interview.

Others are more cautious about the prospect for a major shift in political attitudes toward regulation. Sam Peltzman, a University of Chicago professor and free-market conservative who is widely considered the intellectual godfather of deregulation, said the outlook did not depend solely on who was elected. “It depends on the economy itself,” he said, adding that the government, under either party’s control, would most likely not impose costly regulations on business in bad times.

For example, Mr. Peltzman noted that Senators McCain and Obama were both committed to action against climate change, through a mix of regulations and market forces. “But I think it will be put off because of a slowdown in the economy,” he said. As for health care, “that depends a lot on how strong the Democrats are in Congress.”

There will be no putting off the action on re-regulating finance. Both of the presidential candidates and Congressional leaders like Christopher J. Dodd of Connecticut, the Senate banking committee chairman, and Barney Frank of Massachusetts, the House Financial Services Committee chairman, would go further than the Bush Treasury. They say they want to overhaul the current system next year to rid it of overlapping regulatory agencies, give other agencies new powers and perhaps create a new overseer for the whole system.

Financial institutions are likely to face tougher rules on maintaining capital and liquidity. Companies and instruments that currently are not regulated could be brought under the government’s thumb; unregulated derivatives, hedge funds, mortgage brokers and credit-rating agencies all have been implicated in the current crisis.

Democrats and Mr. McCain talk of limiting executives’ compensation, while Democrats would also give shareholders more say about who sits on corporate boards. Mr. Obama, if he is elected president, would join with the Congressional Democrats, who are likely to increase their majorities in the House and Senate, to revive their unsuccessful proposals to impose new penalties for predatory lending, including mortgage lending.

There are proposals for a new agency to protect consumers against a variety of financial abuses, involving mortgages, auto and student loans and credit cards. Credit card companies’ marketing, billing and interest rates will very likely be reviewed. The insolvency at the insurance giant American International Group is reviving talk in Congress of federal regulation of the insurance industry, which prefers its current, mostly friendly patchwork system of state oversight.

The financial industry “is not the only area where the deregulation ideology got completely out of hand,” Representative Henry A. Waxman of California, chairman of the House Oversight and Government Reform Committee, said in an interview. While Mr. Waxman is already holding hearings on the financial crisis and possible new regulations, he said, “I’m looking forward to working on” issues like climate change and health care insurance in coming years.

Mr. Waxman, who was first elected from California in 1974, said he did not believe the economic downturn would impede new regulations. “Over the years I’ve heard industry after industry come in and say, ‘We cannot survive economically if we have these regulations,’ ” he said. Instead, he argued, studies showed that their compliance was less costly than predicted, and companies emerged more efficient and competitive.

While political stereotypes portray Democrats as favoring regulation and Republicans as deregulators, recent history is more complicated.

A Republican president, Richard M. Nixon, presided over one of the most active regulatory periods of the last half-century, working with the Democrats who controlled Congress in the early 1970s. His legacy includes the Environmental Protection Agency, the Consumer Product Safety Commission and the Occupational Safety and Health Administration and, for a time, wage and price controls.

Later in that decade, a Democrat, President Jimmy Carter, began the deregulatory era that has continued with notable breaks to the present. While people in both parties associate his Republican successor, Ronald Reagan, with making regulation a dirty word politically, it was the Carter administration that instituted cost-benefit analyses for new regulations and deregulated the airline, railroad and trucking industries.

Mr. Reagan’s record was more antiregulation than deregulatory. He and President George H. W. Bush fought Congressional Democrats’ charges that they were not enforcing environmental regulations, among others.

In political campaigns, the Republicans made gains in part by painting Democrats as the party of big government. Studies showed, however, that the number of federal regulations spiked under the first President Bush, in part because of new rules for banks and thrift institutions after the savings and loan scandals of the late 1980s. Also, Mr. Bush signed into law a new Clean Air Act, a nutrition-labeling law and the landmark Americans With Disabilities Act, among others.

A conservative analyst, Bruce R. Bartlett, a Treasury official at the time, recalled that Mr. Bush was so angered by a 1991 magazine report headlined “The Regulatory President” that he ordered a moratorium on all regulations. Sixteen years later, the same magazine, National Journal, ran a similar article about Mr. Bush’s son, calling George W. Bush “the biggest regulator since the Nixon-Ford years.”

That record, however, mostly reflects the many new homeland-security regulations since the Sept. 11, 2001, terrorist attacks. In other areas, President Bush has moved more aggressively than his father and President Reagan away from enforcing existing regulations, choosing to rely on the financial services industry and manufacturers, among other groups, to regulate themselves.

    Both Sides of the Aisle See More Regulation, NYT, 14.10.2008,
    http://www.nytimes.com/2008/10/14/business/economy/14regulate.html

 

 

 

 

 

Intervention Is Bold,

but Has a Basis in History

 

October 14, 2008
The New York Times
By STEVE LOHR

 

After a week of mounting chaos in financial markets around the globe, the United States took a momentous step that shifts power in the economy toward Washington and away from Wall Street.

The government’s plan to prop up banks large and small — along with recent bailouts as well as guarantees to support business loans, money markets and bank lending — represents the most sweeping government moves into the nation’s financial markets since the Great Depression, and perhaps ever, according to economists and finance experts.

The high-stakes program is intended to halt the worst financial crisis since the 1930s. If successful, it could long be studied by historians as a textbook case of the emergency role that government can play to rescue a teetering economy.

“It is profound, and it is something of a shift back to the state,” said Adam S. Posen, an economist at the Peterson Institute for International Economics. “But is this a recasting of capitalism? I think what we’ll see is that the government acts as a silent partner and gets out as soon as it can.”

Indeed, they say, many questions remain. Is the government picking winners in a plan that initially seems tilted toward the nation’s largest banks? What strings are attached to the investment in matters like executive pay? Will the move presage a more forceful government hand to control financial markets or will it be a brief stint as capitalism’s protector?

The package does call for the government investments to be in three-year securities that the banks can repay at any time, when markets settle and conditions improve. “This is clearly a crisis measure in crisis times, but it’s a good thing there is a sunset provision that limits the length of the government’s investment,” said Richard Sylla, an economist and financial historian at the Stern School of Business at New York University.

The United States is acting in step with Europe, where governments often take a more interventionist stance in economies and the financial systems are in the hands of a comparatively small number of banks.

Britain took the lead last week, declaring its intention to take equity stakes in banks to steady them. In the last two days, France, Italy and Spain have announced rescue packages for their banks that include state shareholdings.

The government’s plan is an exceptional step, but not an unprecedented one.

The United States has a culture that celebrates laissez-faire capitalism as the economic ideal, yet the practice strays at times. Over the last century, the federal government has occasionally taken stakes in railways, coal mines and steel mills, and has even taken a controlling interest in banks when it was deemed to be in the national interest.

The corporate wards of the state typically have been returned to private hands after short, sometimes fleeting, stretches under federal stewardship.

Finance experts say that having Washington take stakes in United States banks now — like government interventions in the past — would be a promising move to address an economic emergency. The plan by the Treasury Department, they say, could supply banks with sorely needed capital and help restore confidence in financial markets.

Elsewhere, government bank-investment programs are routinely called nationalization programs. But that is not likely in the United States, where nationalization is a word to avoid, given the aversion to anything that hints of socialism.

In past times of war and national emergency, Washington has not hesitated. In 1917, the government seized the railroads to make sure goods, armaments and troops moved smoothly in the interests of national defense during World War I. After the war ended, bondholders and stockholders were compensated and railways were returned to private ownership in 1920.

During World War II, Washington seized dozens of companies, including railroads, coal mines and, briefly, the Montgomery Ward department store chain. In 1952, President Harry S. Truman seized 88 steel mills across the country, asserting that unyielding owners were determined to provoke an industrywide strike that would cripple the Korean War effort. That nationalization did not last long, though, because the Supreme Court ruled the move an unconstitutional abuse of presidential power.

In banking, the government took an 80 percent stake in the Continental Illinois Bank and Trust in 1984. Continental Illinois failed in part because of bad oil-patch loans in Oklahoma and Texas. As the nation’s seventh-largest bank, Continental Illinois was deemed “too big to fail” by federal regulators, who feared wider turmoil in the financial markets. In the end, the government lost an estimated $1 billion on the bad loans it bought as part of the takeover of Continental, which eventually became part of Bank of America.

The nearest precedent for the Treasury plan, finance experts say, are the investments made by the Reconstruction Finance Corporation in the 1930s. The agency, established in 1932, not only made loans to distressed banks, but also bought stock in 6,000 banks, at a cost of $1.3 billion, said Mr. Sylla, the N.Y.U. economist. A similar effort these days, in proportion to today’s economy, would be about $200 billion.

When the economy stabilized eventually, the government sold the stock to private investors or the banks themselves — and about broke even, Mr. Sylla estimated. The 1930s program was a good one, experts say, but the government moved too slowly to deal with the financial crisis, which precipitated and lengthened the Great Depression. The lesson of history, it seems, is for Washington to move quickly in times of economic crisis with a forceful government intervention in the marketplace. And Ben S. Bernanke, chairman of the Federal Reserve, has studied the Great Depression and the policy miscues in those years.

“The goal is to get the engine of capitalism going as productively as possible,” said Nancy Koehn, a historian at the Harvard Business School. “Ideology is a luxury good in times of crisis.”

The traditional American reluctance for government ownership is not shared in other countries. After World War II, several European countries nationalized basic industries like coal, steel and even autos, which typically remained in government hands until the 1980s, when most Western economies began paring back the state’s role in the economy.

Europe remains far more comfortable with government having a strong hand in business. So when Sweden, for example, faced a financial crisis in the early 1990s, the nationalization of much of the banking industry was welcomed. The Swedish government quickly bought stakes in banks, and sold most of them off later — a model of swift, forceful intervention in a credit crisis, financial experts say.

“In Europe, the concept of the social contract is much more social — that is, socialist — than we’ve been comfortable with in America,” said Robert F. Bruner, a finance expert at the Darden School of Business at the University of Virginia.

“The obvious danger with anything that really starts to look like the government taking ownership or control of a significant piece of an industry is, Where do you stop?” Mr. Bruner said. “The auto industry is in dire straits and the airline industry is in trouble, for example.”

“But the spillover effects from the crisis in the financial system are so great, pulling down the rest of the economy in a way that no other industry can, so that the potential cost of not doing something like this is immense,” Mr. Bruner said.

    Intervention Is Bold, but Has a Basis in History, NYT, 14.10.2008,
    http://www.nytimes.com/2008/10/14/business/economy/14nationalize.html

 

 

 

 

 

 

Clive Crook:

Nationalisation in all but name

 

Published: September 8 2008 03:00
Last updated: September 8 2008 03:00
The Financial Times
By Clive Crook


The "conservatorship" that Hank Paulson, Treasury secretary, has announced for Fannie Mae and Freddie Mac is nationalisation by another name. Give the man some credit for this. It is not an easy thing for a Republican administration to take two such colossal undertakings on to the public sector's balance sheet two months after promising not to.

Recall that Fannie and Freddie - hybrids that are privately owned but "government sponsored" - own or guarantee more than $5,000bn (€3,500bn, £2,825bn) of mortgage-backed securities. Britain's nationalisation of Northern Rock brought some £100bn of loans on to the public sector's balance sheet, and was the biggest in the nation's history. The nationalisation of Fannie and Freddie, in a country less well disposed to public ownership, is more than 25 times bigger.

Under the new plan the Treasury will directly support the housing market by buying mortgage-backed securities. That too requires an ideological flexibility not usually associated with this administration. Two months ago Mr Paulson emphasised the importance of supporting Fannie and Freddie so that they could carry on - as they must, he said - as privately owned entities. So much for that.

It would have been possible to muddle through a while longer. Recent suggestions of new accounting issues, indicating that the agencies' capital was even thinner than supposed, helped bring the announcement forward. The continuing deterioration in their ability to borrow - let alone raise new equity - pushed the same way.

Now that it has decided to move, the Treasury cannot plausibly be attacked for trying to patch and mend. The comprehensive character of the plan contrasts favourably with the evasions and hesitations of the British government's handling of Northern Rock.

The eventual cost to taxpayers is unknown. If the housing market rallies before long, it could be in the low tens of billions of dollars. If things keep getting worse, it could be in the hundreds of billions. But Fannie and Freddie have made themselves indispensable to any housing market recovery: the cost, whatever it is, will have to be paid.

Bearing in mind the staggering scale of this intervention, yesterday's move was surprisingly uncontroversial. Both presidential campaigns back it, recognising the need to keep mortgage finance flowing. Differences are likely to arise over the terms of the nationalisation, however.

Shareholders in the entities are expected to recover almost nothing: rightly so. Both boards (not just the chief executives) should be dismissed.

The plan calls for the agencies' portfolios to be downsized from 2010, but the next administration should aim beyond that to get the government as far as possible out of the housing market. This means breaking Fannie and Freddie into pieces small enough to fail, and privatising them. If the function they discharged - that of providing liquidity to the mortgage market - cannot be profitably undertaken without an implicit public subsidy, then it should not be undertaken at all.

    Clive Crook: Nationalisation in all but name, FT, 8.9.2008,
    http://www.ft.com/cms/s/0/4c6591be-7d3d-11dd-8d59-000077b07658.html

 

 

 

 

 

News Analysis

A History of Public Aid During Crises

 

September 7, 2008

The New York Times

By NELSON D. SCHWARTZ

 

Despite decades of free-market rhetoric from Republican and Democratic lawmakers, Washington has a long history of providing financial help to the private sector when the economic or political risk of a corporate collapse appeared too high.

The effort to save Fannie Mae and Freddie Mac is only the latest in a series of financial maneuvers by the government that stretch back to the rescue of the military contractor Lockheed Aircraft Corporation and the Penn Central Railroad under President Richard M. Nixon, the shoring up of Chrysler in the waning days of the Carter administration and the salvage of the savings and loan system in the late 1980s.

More recently, after airplanes were grounded because of the terrorist attacks of Sept. 11, 2001, Congress approved $15 billion in subsidies and loan guarantees to the faltering airlines.

Now, with the federal government preparing to save Fannie and Freddie only six months after the Federal Reserve orchestrated the rescue of Bear Stearns, it appears that the mortgage crisis has forced the government to once again shove ideology aside and get into the bailout business.

“If anybody thought we had a pure free-market financial system, they should think again,” said Robert F. Bruner, dean of the Darden School of Business at the University of Virginia.

The closest historical analogy to the Fannie-Freddie crisis is the rescue of the Farm Credit and savings and loan systems in the late 1980s, said Bert Ely, a banking consultant who has been a longtime critic of the mortgage finance companies.

The savings and loan bailout followed years of high interest rates and risky lending practices and ultimately cost taxpayers roughly $124 billion, with the banking industry kicking in another $30 billion, Mr. Ely said.

Even if the rescue of Fannie and Freddie ends up costing tens of billions of dollars, the savings and loan collapse is still likely to remain the costliest government bailout to date, said Lawrence J. White, a professor of economics at the Stern School of Business at New York University.

“The S.& L. debacle cost upwards of $100 billion, and the economy is more than twice the size today than it was in the late 1980s,” he said. “I don’t think this will turn out to be as serious as that, when over 2,000 banks and thrifts failed between the mid-1980s and mid-1990s.”

Most of those losses were caused by the shortfall between what the government paid depositors and what it received by selling the troubled real estate portfolios it acquired after taking over the failed thrifts.

In the Chrysler case, President Jimmy Carter and lawmakers in states with auto plants helped push through a package of $1.5 billion in loan guarantees for the troubled carmaker, while also demanding concessions from labor unions and lenders.

While Chrysler is remembered as a major bailout, Mr. White says it was minor compared with the savings and loan crisis or the current effort to shore up Fannie and Freddie.

In fact, the government did not have to give money directly to Chrysler, and it actually earned a profit on the deal because of stock warrants it received when the loan guarantees were provided. At the time, Chrysler had a work force of more than 100,000 people.

Still, Mr. Ely makes a distinction between the rescue of Fannie and Freddie and the thrifts versus the aid packages for Chrysler and other industrial companies. “They didn’t have a federal nexus,” he said. “They weren’t creatures of the federal government.”

This effort is also different from the others because of the potential fallout for the broader economy and especially the beleaguered housing sector if it does not succeed.

Unlike a particular auto company or even a major bank like Continental Illinois National Bank and Trust, which was bailed out in 1984, “we depend on Fannie and Freddie for funding almost half of our mortgage market,” said Thomas H. Stanton, an expert on the two companies who also teaches at Johns Hopkins University.

“The government,” he added, “has many less degrees of freedom in dealing with these companies than in the earlier bailouts.”

A History of Public Aid During Crises,
NYT, 7.9.2008,
http://www.nytimes.com/2008/09/07/business/07bailout.html

 

 

 

 

 

Financial Regulation Plan Proposed

 

March 31, 2008

Filed at 3:11 a.m. ET

The New York Times

By THE ASSOCIATED PRESS

 

WASHINGTON (AP) -- The Bush administration is proposing the biggest overhaul of financial regulation since the Great Depression. The sweeping plan is already drawing intense criticism -- a debate unlikely to be settled until a new president takes office.

The 200-page document, which was to be released Monday by Treasury Secretary Henry Paulson, proposes giving broad new powers to the Federal Reserve to combat the type of severe credit crisis currently gripping financial markets.

It would designate the Fed as a ''market stability regulator'' and give it the power to examine the books of any financial institution, not just banks, that might pose a threat to the stability of the financial system.

According to a 22-page executive summary obtained by The Associated Press, the plan would also eliminate the Office of Thrift Supervision and the Commodity Futures Trading Commission, merging their functions into other agencies.

The Paulson plan, which the administration has been working on for a year, calls for the eventual creation of three regulatory agencies.

In addition to the Fed as a ''market stability regulator,'' the plan would create a ''prudential financial regulator'' for the nation's banks, thrifts and credit unions, in place of the five agencies that perform that task now.

The third new agency would regulate business conduct and consumer protection, taking over many of the functions of the Securities and Exchange Commission.

The proposed overhaul would be the most extensive since the current regulatory system was created in response to the 1929 stock market crash and the Great Depression.

It comes at a time when the financial system faces its most severe credit crisis in two decades, one that has resulted in billions of dollars of losses for big banks and investment houses and the near-collapse of the country's fifth-largest investment bank.

The rising tide of bad debt has made it harder for consumers and businesses to get credit, further weighing on an economy struggling with a prolonged housing slump and soaring energy prices. Many economists believe the country is already in a recession.

The market turmoil has presented an opening for critics to make the case for stronger federal rules to prevent abuses. Treasury Secretary Paulson rejects making that link.

''I do not believe it is fair or accurate to blame our regulatory structure for the current turmoil,'' Paulson said in a draft of remarks he was to deliver Monday.

Democrats said the plan wouldn't do enough to crack down on problems in mortgage lending and the sale of complex financial products that have been exposed by the current market turmoil.

Senate Banking Committee Chairman Christopher Dodd said that the administration blueprint ''would do little if anything to alleviate the current crisis.''

House Financial Services Committee Chairman Barney Frank, D-Mass., who is working on his own regulatory revamp, called Paulson's plan a ''constructive step forward'' but said it wouldn't give the Federal Reserve the regulatory authority needed for its broader market stability role.

Frank and others said that given the complexity of the issues, they expect the debate on the Paulson proposal and Democratic alternatives will continue in Congress as the next president takes office.

Business groups are split on the Paulson approach. The U.S. Chamber of Commerce and the securities industry support the broad outlines, but banking lobbyists are critical of some of the details affecting their industry.

''Dismantling the thrift charter and crippling state banking charters will weaken banking in America,'' said Edward Yingling, president of the American Bankers Association.

Financial Regulation Plan Proposed,
NYT,
31.3.2008,
http://www.nytimes.com/aponline/us/AP-Fed-Overhaul.html

 

 

 

 

 

 

 

 

 

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