The announcement of a plan to inject billions of dollars in loans and investments was intended to show the government would stand behind the beleaguered companies. It is a bail out. What we should be talking about is a nationalization. The text of Secretary Paulson’s comments:

Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies. Their support for the housing market is particularly important as we work through the current housing correction.

GSE debt is held by financial institutions around the world. Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore we must take steps to address the current situation as we move to a stronger regulatory structure.

In recent days, I have consulted with the Federal Reserve, OFHEO, the SEC, Congressional leaders of both parties and with the two companies to develop a three-part plan for immediate action. The President has asked me to work with Congress to act on this plan immediately.

First, as a liquidity backstop, the plan includes a temporary increase in the line of credit the GSEs have with Treasury. Treasury would determine the terms and conditions for accessing the line of credit and the amount to be drawn.

Second, to ensure the GSEs have access to sufficient capital to continue to serve their mission, the plan includes temporary authority for Treasury to purchase equity in either of the two GSEs if needed.

Use of either the line of credit or the equity investment would carry terms and conditions necessary to protect the taxpayer.

Third, to protect the financial system from systemic risk going forward, the plan strengthens the GSE regulatory reform legislation currently moving through Congress by giving the Federal Reserve a consultative role in the new GSE regulator’s process for setting capital requirements and other prudential standards.

I look forward to working closely with the Congressional leaders to enact this legislation as soon as possible, as one complete package.

Not to quibble, but it sounds like you’re more worried about the shareholders of two publically-traded firms rather than the clients of those firms whose homes are losing value in a real estate bubble. I suggest that you go to Sweden as soon as possible and look at what they did back in the early 1990s.

GSE, by the way, stands for Government Sponsored Enterprise. Both Fannie Mae and Freddie Mac are GSEs. However, they are privately owned but publicly chartered.

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Cross-posted from The Global Sociology Blog. My post, my views.

Via Le Monde, everybody hates tax havens but they do not exist at the margins of the global financial system. If anything, they are an integral part of it and every year, billions of dollars land there. They are an integral part of the infrastructure of international finances.

What circulates through tax havens? Clean and dirty money (proceeds from illegal activities that end up there for purposes of money-laundering), tax-evasion money. Tax havens were allowed to prosper by all the economic powers, but now, they are worried because they have realized that these havens make funding terrorism easier and more discreet. In the past months, we also discovered that these place facilitate tax fraud on a grand scale, as the case of Liechtenstein where more than a thousand Western people deposited their funds. So, it is not really a surprise that this topic has come up at the G8 meeting.
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The Aspen Institute, founded in 1950, is an international nonprofit organization dedicated to fostering enlightened leadership and open-minded dialogue. President Clinton was the featured speaker at its annual Aspen Ideas Festival conference this past week. Here are some highlights of his comments:

Here is my profile of Ellen Johnson Sirleaf about whom President Clinton speaks in the above segment.

“It’s a simple little thing that philanthropists should be doing anywhere: Change the business model,” the former president said while discussing a market-based solution for distributing affordable HIV/AIDS drugs in the developing world. Clinton explained how, by changing the system of drug production and sales, his Clinton Foundation was able to cut their costs drastically while still allowing manufacturers to turn a profit.

He took a similar tack on addressing starvation in sub-Saharan Africa and other regions facing food shortages. Clinton said America needs to “get the show on the road” by aiding farmers and developing native agriculture in ailing nations, rather than simply dumping American foodstuffs on them.

“It’s crazy for us to keep using the old way of delivering food aid,” he said, explaining how Canada now devotes half of its outgoing aid to cash for farmers. Even the current suffering in Zimbabwe, he argued, could be alleviated by implementing a system that effectively tapped into its natural resources for food production. “This was a nation that could have been Africa’s bread basket,” he said.

I also agree with President Clinton’s comments from the second clip on how the nature of food chain is about to change dramatically. Local produce is the future. He is just super smart. A policy wonk. That’s not Barack Obama in the least.

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Cross-posted from The Global Sociology Blog. My post, my choice of topic, my snark.

High gas prices, home foreclosures may be squeezing people in the United States and Europe (in major parts of the Global South, feeling the big time crunch is a chronic condition), but not everybody is hurting. According to the BBC, there are now more global millionaires:

“The number of people worth more than US$1m (£507,000) rose to 10.1 million in 2007, a wealth survey suggests. Despite the growing credit crisis, there were 600,000 more members of the global millionaires’ club than there were a year earlier. Their combined wealth also rose, by 9.4% to $40.7 trillion, according to Merrill Lynch and Cap Gemini. The fast-growing economies of India, China and Brazil saw the biggest rises in the number of wealthy individuals. The number worth more than $30m increased by 8.8%, while their total wealth grew by 14.5%.”

According to Cap Gemini’s World Wealth Report 2008, this is where the wealthiest are:

• North America - $11.7 trillion
• Europe - $10.6 trillion
• Asia Pacific - $9.5 trillion
• Latin America - $6.2 trillion
• Middle East - $1.7 trillion
• Africa - $1 trillion

How do these lucky few spend their money? According to the Guardian,

“They spend 16% of their money on “luxury collectibles” including cars, boats and private jets, another 16% on art-underpinning the booming global art market, 14% of their money on luxury travel and another 14% on jewellery, gems and watches. They spend 5% on sporting investments, buying up teams and race horses.”

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Cross-posted from The Global Sociology Blog.

Via the BBC,

“Christine Lagarde, the country’s first female minister for finance and the economy, says it is time for French people to “roll up their sleeves” and stop thinking about holidays.”

Bon Chance!!!! Good luck with that, Madame Le Ministre for Finance and the Economy. We, lazy French people, have survived attempts at reform from a lot of conservative governments. And you know what, we love our five week vacations and social benefits, so, you know what you can do with your US-neo-liberal-style reform?

Actually, Madame Le Ministre seems quite clueless:

“She says she was struck on her return [from the US] by an “ethical change” in the French. “Instead of thinking about their work, people were thinking about their weekend… organising, planning and engineering time off,” she says.

Not that Christine Lagarde believes that life should be “work and nothing else”.

Looking out from her office window in the huge Soviet-style finance ministry, she points out the barges on the River Seine below - a reminder she says, of how slow things can be when other events are moving at high speed.

Making rapid progress recently has been the minister’s pet project, a bill to modernise the French economy. Last week it passed its first reading in the National Assembly and will shortly go before the Senate.

“More enterprises and more competition” were the objectives, she told parliament earlier this month, in order to obtain three concrete results: “more growth, more jobs and more purchasing power”.

Christine Lagarde’s task is to sell some of the most challenging reforms of the Sarkozy era to the French people. Her call for harder work, as well as the measures contained in the economy bill, can touch a raw nerve.”

Oh yeah, pass that bill and you know what she’ll be seeing next out from her office window? The huge demonstrations that are sure to follow. The French people (like me) can be profoundly (and proudly) annoying but we are not stupid. When we hear reform, we know it means cutting back our social benefits.

Has it occurred to Madame Le Ministre that the French might actually prefer vacations to money? No, of course not, neo-liberals can only conceive that everybody is as soullessly greedy as they are.

Photo Source: AFP from article.

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Here is the Tuesday, May 20th, 2008 of interesting reads from around the world.

German President Calls Bankers “Monsters”
In an interview with the German magazine Stern, the German President Horst Köhler has called upon bankers to confess their guilt for the financial crisis. He is still missing “a clearly audible mea culpa”, Köhler said in the interview. “By now, it must have dawned on everyone who thinks responsibly in the industry that international financial markets have developed into a monster, which must be contained.” Stern only publishes in German. It’s a short interview so here is another short quote for my non-German speaking audience: The industry has “barely any relationship to the real economy remaining. Part of this are also bizarrely high compensations for individual financial managers.” The financial world has “disgraced itself mightily.” Thank God that I am no longer an investment banker otherwise I might feel slighted. The German President while Head of State has only ceremonial duties. Horst Köhler, however, is a man to whom we should listen. He is not exactly some kook in a German palace. As the former head of the International Monetary Fund, German President Horst Köhler is well qualified to comment on the global financial crisis. In an interview last week, he had said that the global financial system “came close to collapse.” Here’s more of this compelling read:

Köhler called for “stricter and more efficient regulation” in response to the market turbulence, which has caused serious fallout (more…) at several German banks. He was critical of the increasingly sophisticated investment vehicles that helped to spark the crisis. “The over-complexity of the financial products, and the possibility of carrying out large leveraged deals with a small amount of capital, have allowed the monster to grow,” Köhler said.

The president had a stark assessment of the severity of the crisis. “I want to hope that the worst is past,” Köhler said. “Nevertheless, we came close to a collapse of the global financial markets.”

The criticism is given added weight by the fact that Köhler is the former head of the International Monetary Fund (IMF). During his illustrious career he has also been a junior minister in the German Finance Ministry, chairman of the association of savings banks in Germany and president of the European Bank for Reconstruction and Development.

German Investor Confidence Unexpectedly Fell in May
On the heels of the above, Bloomberg Financial News reports that investor confidence in Germany unexpectedly fell for a second month in May on concern faster inflation, the stronger euro and fallout from the U.S. housing slump will hurt economic growth. At the moment, the German economy has been enjoying robust growth.

Taiwan Has a New President
Taiwan’s new president took office on Tuesday with a historic offer to reopen dialogue with China, which claims the island as its territory, but pledged to maintain Taipei’s existing self-rule and separate international profile. President Ma Ying-jeou urged China in his inaugural speech to move toward democracy and allow Taiwan a larger international role, testing his relationship with a government that claims sovereignty over the island. More on Taiwan’s new leader from the UK Guardian.

The Zimbabwean Crisis
It is time for the international community to deal with Robert Mugagbe in no uncertain terms. Zimbabwe is drifting periously towards famine and genocide and yet African leaders offer nothing but words of comfort to Mugagbe. It is incumbent upon South African President Mbeki to act and to act now. Now just for the sake of Zimbabwe but also for the sake of his own country. There are three million refugees from Zimbabwe in South Africa growing by at a rate of 1,000 a day. There are another million Zimbabweans scattered across Botwsana, Mozambique and Zambia. Mugagbe must go. Yes he is a hero of independence, the last lion. But at this point his pride is on verge of a calmanity that is affecting the whole of the region. If Mugagbe remains in power much longer, the implications for the region could be severe indeed. The riots in Johannesburg aimed at refugees from Zimbabwe are only the tip of the iceberg. More on the riots and the crisis in Zimbabwe from the UK Guardian-South Africa and the UK Guardian-Zimbabwe.