Originally Posted by Villages Kahuna

The U.S. financial industry has essentially been nationalized--socialized, if you will--all within the last couple of weeks.

• The government now owns Fannie Mae and Freddie Mac, two financial firms that are the cornerstone of the U.S. housing industry.

• The government now owns AIG, rhe largest U.S. insurance company.

• The government narrowly avoided having to nationalize the largest U.S. savings and loan (Washington Mutual) and the largest bond broker-dealer, which underwrites and re-sells a huge porportion of U.S. government bonds (Bear Stearns), by quickly arranging their aquisition by JP Morgan Chase. What wasn't divulged in the announcement of that deal was how much the government will underwrite of the bad assets that brought the two firms down. I'm guessing that JPMorgan Chase will be getting a meaningful chunk of the $700 billion bailout money authorized today. The government--we--won't own either of the two firms, but make no mistake we paid a large part of the acquisition costs by JPMorgan Chase.

• I'd be willing to bet that some sort of government backstop likely had a lot to do with the Bank of America's acquistiion of Merrill Lynch, as well. When the 10Q's and 10K's are published in future years, watch for how much of the money was ours.

• Goldman Sachs and Morgan Stanley are teetering, but are still privately-owned. But our government will be involved in the future management of these firms by demanding that they agree to become national bank holding companies and subject to regulation by the Federal Reserve. Watch for how much of the $700 bil goes to buying the bad assets from these two firms.

• One of the largest European banks, the United Bank of Switzerland (UBS) may be mortally damaged by their ownership of U.S. mortgage-backed securities. I'm hopeful that we spend the $700 bil bailing out our own financial institutions first, but in this world financial market don't be surprised of some of "our" money goes to bail out a European bank. Someone should be asking how much the Europeans are anteing up for their part of the bailout. Nationalizing our banks is one thing, but funding foreign banks is altogether another.

• And the $700 billion authorized by Congress today will be used to buy non-performing assets from financial institutions in an attempt to assure their survival. In these cases, the government won't own the beneficiaries--nationalizing them--but public funds will be what will assure their survival.

The motives for nationalization are political as well as economic. It is a central theme of certain brands of 'state socialist' policy that the means of production, distribution and exchange should be owned by the state on behalf of the people. Socialists believe that public ownership enables people to exercise full democratic control over the means whereby they earn their living and provides an effective means of redistributing wealth and income more equitably. In the current instance the U.S. government won't own all the important financial institutions, but it will be our money that will permit their survival.

Here's part of the defiinition of a "nationalized" industry. Does this sound familiar?...Nationalized industries are charged with operating in the public interest and may be under strong political and social pressures to give much more attention to externalities. They may be obliged to operate some loss making activities where social benefits are clearly greater than social costs. Nationalization may occur with or without compensation to the former owners.That's not Fannie Mae and Freddie Mac described to a "t", isn't it?

You won't hear the term "nationalized" or "socialized" passing he lips of any elected or appointed official in Washington. But there is no doubt that we have just socialized our banking system. And just in case anyone missed it, all this happened on the watch of an eight-year long conservative political administration. Many are expressing concern that the liberal presidential candidate might sponsor socialist-leaning legislation if he is elected. It's doubtful that he'd be successful in achieving anything approaching the scale of the socialism that has actually occurred by the nationalization of our financial industry in the last two weeks.

Maybe the lesson to be learned is that a particular political party can't be relied upon, even over a long period of time, to achieve the idealogies of those they purport to represent. Maybe what we've learned is that we should ignore the labels and the campaign rhetoric in favor of listening and watching what our elected representatives say and do. And until some meaningful reform is made in campaign finance laws--like the Deep Throat character suggested to Bob Woodward back in the Nixon administration--FOLLOW THE MONEY!