I was amazed at how many people got all worked up when the idea of nationalizing the banks came up. These people fail to pay attention to the fact that we’ve already nationalized Fannie Mae and Freddie Mac and these two giants essentially hold up the entire edifice of the secondary mortgage market. But no one in their right mind is buying those risky mortgage backed securities anymore right? Well we have a program for that too with the Federal Reserve nearing its stated buying cap of $1.25 trillion in mortgage backed securities. In other words, we’ve already nationalized the mortgage market except unlike nationalization, we get the worst junk pushed to taxpayers while the banks enjoy record profits and nothing really fundamentally changes.
The SIGTARP report, an insightful and disturbing 224 page read put out early on Saturday by Special Inspector General Neil Barofsky shows us the wicked web of bailouts we have undertaken. For the record, I think Mr. Barofsky is one of the good guys and has done a superb job just like Elizabeth Warren for fighting for sensible protections in our Wild West financial system. They’ve laid out the path but those at the helm seem happy to ignore the recommendations. I will go through some of the important items in the report but one key finding is that we are going into housing bubble 2.0 and we need to gear up for a second leg down if something should give way (like the economy not adding any jobs for example).