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The Therapy Sessions
Monday, October 04, 2004

Robert Reich (?) gets one right

Robert Reich, Clinton's squirrelly Secretary of Labor, has finally written something I agree with:
Fannie and her smaller cousin, Freddie Mac, help finance about half the home mortgages in the United States. Their combined debt is now more than $2 trillion -- and on the way to exceeding the debt of the entire federal government. We're not talking peanuts here. Last year, Freddie got in trouble for accounting manipulations. Now, it's Fannie's turn.

Federal regulators say Fannie manipulated its earnings partly to allow its top executives huge bonuses. Sounds like the same tune we've been hearing on Wall Street for several years. But here's the difference -- and why we won't hear much about it in the presidential campaign. Fannie is a creature of Washington, not Wall Street. Its top executives and board members come from the highest rungs of both parties. It's one of the most generous campaign contributors in Washington, and its lobbyists are among the most powerful.

Fannie is a Washington power house in order to maintain its privileged position -- acting as if its debt is backed by the federal government, when in fact it isn't; borrowing money at a discount because financial markets assume that the feds will bail it out if it ever gets in trouble; using the cash pretty much as it wants; while at the same time avoiding tough federal oversight. Who could want anything more?

Yes, Fannie Mae and Freddie Mac are hopelessly corrupt, and they should be privatized.

There is a lesson here about absolute power.

Democracy works because it disperses power. There are different spheres of power: there are our politicians, surely, but there also our business leaders and religious leaders. There are the people in our media and entertainment industries, and people who run our charities, our civic institutions and our activist groups.

In a democracy, all function independently and power remains dispersed. It is unthinkable that Cardinal O'Hara or the head of Greenpeace would become a Senator, for example.

Sure, sometimes they work together and sometimes their interests overlap. But in general, these leadership positions are kept separate.

In other (less free) societies, the types of power are combined. This concentration of power leads to usually to corruption, and often to tyranny. Power corrupts, and concentration of power leads toward absolute power, which corrupts absolutely.

For example, the combination of religious and political power leads to theocracy - which is never a good thing in terms of human rights.

Likewise, when the interests of business and politics are joined, you have socialism and its inherent corruption: if your business is serving the people, who could possibly stand in your way? Anyone who would dare certainly needs to be re-educated, and if the people would question the government that serves them, they must be repressed. Socialism always evolves toward tyranny.

Fannie Mae and Freddie Mac are examples of a kind of pre-socialist collusion between the political and the business worlds. Their purpose, supposedly, is too altruistic to be left to cruel market forces alone, so they are managed tightly by the government.

Therefore, thay have all the inefficiency and lack of oversight common in government agencies. Their executives have the greed common in the business world, without having to submit to the accounting oversight that most investors - that is, investors in companies that the government won't bail out if it gets into trouble - would demand.

Fannie Mae cloaks itself in the righteous pursuit of the people's good, and no one can stand in its way. They are assured - supposedly - of a federal help if they screw up, and this has made them sloppy and careless.

Its part business; part government. The worst of both worlds.

Absolute power. Corrupting absolutely.

Just like always.

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