Trade
Afta Doha
Should free traders applaud the rise of preferential trade deals?
CONTEMPLATING the failure of the Doha round of multilateral trade talks, which collapsed in Geneva in July, Peter Mandelson, trade commissioner of the European Union (EU), predicted that by the time the talks resumed, “the caravans will have moved on elsewhere.” On August 28th they trundled through Singapore. The ten members of the Association of South-East Asian Nations (ASEAN) agreed on a trade deal with India and reached a separate accord with Australia and New Zealand. Together, the agreements cover trade worth about $70 billion in 2006.
After the Geneva disappointment, some free traders find consolation in the success of bilateral and regional deals, such as those agreed on in Singapore. Since the Doha round was launched almost seven years ago, over 100 such deals have come into force, lowering tariffs for some members of the World Trade Organisation (WTO) but not others (see map).
These preferential deals violate the principle of “most-favoured nation” (MFN), which holds that any favour offered to one member must be offered to all. But that principle now has few defenders in the world’s trade ministries. In his new book, “Termites in the Trading System”, Jagdish Bhagwati of Columbia University points out that negotiators see any deal as a “feather in your cap”. But economists know better. By playing favourites with its trading partners, a country can dupe itself into paying more for its imports. Its consumers may switch from a low-cost supplier to a more expensive one, only because the new supplier can sell its goods duty-free and the other cannot. The consumer pays less, but the Treasury is deprived of tariff revenue. Thus discriminatory trade deals do not just hurt those left out.
ASEAN, however, seems a compelling advertisement for regionalism. Its members (which include Indonesia, Malaysia, the Philippines, Thailand and Vietnam) have only 3% of the world’s land area but 11% of its coastline, which extends for 173,000 kilometres around the region’s peninsulas and archipelagos. ASEAN’s prosperity depends on trade: its ratio of exports to GDP is almost 70%.
The group’s economic geography is as spectacular as its topography. Elaborate networks of production span the region and extend to China, Japan and South Korea. Much of the region’s trade is in parts (such as car components) and tasks (such as assembly) rather than finished goods. It has become part of what Richard Baldwin, of the Graduate Institute of International Studies in Geneva, calls “Factory Asia”.
Some of this success may be due to the ASEAN Free-Trade Area (AFTA), which has cut barriers between members and attracted foreign direct investment. But Factory Asia also demonstrates the flaws of such agreements. If a country wants to grant favours to one trading partner but not all, it has to write complex “rules of origin” to establish the nationality of a product.
But in a dense network of production, every product is a mongrel, with an indecipherable pedigree. In recognition of this, AFTA’s rules of origin are quite relaxed: a good qualifies even if only 40% of its value was added in the region, and that 40% can come from more than one member.
Even so, ASEAN’s success owes more to ambitious cuts in its MFN tariffs, which it applies to everybody. Thailand, for example, slashed its average tariff from 41% in 1989 to 18% in 2000; Indonesia cut from 25% to 8%. If the MFN tariff is low enough, exporters will pay up rather than trouble themselves with documenting the origin of their products. Only 5% of ASEAN trade takes advantage of the preferences its officials so painstakingly negotiated.
If multilateral liberalisation were proceeding apace, firms everywhere could bypass the thicket of preferential agreements, just as South-East Asian companies have bypassed AFTA. But do such accords help or hinder the cause of full liberalisation?
Mr Bhagwati insists that they hinder it. One of the stumbling blocks in the Doha round, for example, was “preference erosion”. Some African and Caribbean countries did not want to see the EU open its banana market to all and sundry, because that would erode the value of their privileges. (This issue was reportedly resolved at the Geneva summit in July.)
Sometimes it is the countries granting the privileges that want to preserve their worth. America, for example, offers trade deals to strategic allies as a reward for fighting the war on drugs or stabilising the Middle East. Nuno Limão, of the University of Maryland, has shown that in the last global trade round America was slower to cut MFN tariffs wherever that would remove a plum from its allies’ mouths.
But not all of the evidence is as gloomy. A new study, by Antoni Estevadeordal of the Inter-American Development Bank, Caroline Freund of the World Bank and Emanuel Ornelas of the London School of Economics, reaches a more optimistic conclusion. Looking at ten Latin American countries in the 1990s, they show that preferential cuts in a tariff were often followed by multilateral cuts in the same tariffs.
This may be the result of what Mr Baldwin calls the “juggernaut effect”. A trade deal, even a discriminatory one, should enlarge a country’s export sector and shrink domestic industries vulnerable to foreign competition. This will, in turn, change the country’s politics, strengthening the “mercantilist” lobby, which demands open markets overseas, and weakening the country’s protectionist constituencies. If the export lobby gets its way, freer trade will follow, further strengthening the mercantilists at the expense of the protectionists. The juggernaut, Mr Baldwin writes, is slow to start rolling, but hard to stop.
Will India’s ASEAN deal get the juggernaut rolling in India? Unfortunately, the agreement protected 489 politically sensitive items, mostly agricultural products. The deal thus gives India’s exporters a little of what they want, reducing their incentive to fight for a Doha round. But it still leaves the country’s farmers with every reason to resist a return to Geneva.
The word “juggernaut”, Mr Baldwin notes, has an Indian origin: it is a British mispronunciation of the Hindu deity, Jagannath. Each year, the deity is worshipped in a garlanded chariot, pulled through the streets by pilgrims. The caravans may be moving as Mr Mandelson predicted. Unfortunately, India’s free-trade chariot seems stuck somewhere between Singapore and Switzerland.
Going up
University attendance is growing
STUDENTS are going to university in unprecedented numbers. In 2006, 56% of school-leavers in industrialised countries went on to university, up from 37% in 1995, according to an OECD report published on Tuesday September 9th. Nearly all of the 30 OECD countries have seen entry rates increase, and the extra cash needed has come from a variety of sources. Some countries, such as Britain, charge tuition fees, whereas Nordic countries levy high taxes. But America spends the most on each university student, thanks to a large pot of private financing.
Sept. 10 (Bloomberg) -- Treasury Secretary Henry Paulson's takeover of Fannie Mae and Freddie Mac is roiling the market for preferred securities.
Prices of fixed-rate preferred stock fell an average of 9 cents to 71.5 cents on the dollar this week, according to Merrill Lynch & Co. index data, the biggest two-day drop in more than a decade. The 11 percent decline compares with a 1.4 percent drop in the Standard & Poor's 500 index over the same time.
In putting Fannie and Freddie in conservatorship, Paulson scrapped dividends on the mortgage finance companies' equity securities and said the U.S. would buy as much as $200 billion of preferred stock ranking ahead of existing issues. Investors are more hesitant to invest in similar securities of other financial institutions on concern Paulson set a precedent for issuers. Unlike common stock, preferreds typically carry fixed dividends.
Paulson's ``actions have damaged the preferred market,'' said Thomas Hayden, the investment strategist for Liberty Bankers Life Insurance in Dallas. ``Somebody is going to be looking at an issue of Fannie or Freddie preferred shares that were rated AA up until a few months ago. If that's not money good then what about the small regional bank in some part of the country?''
Hayden, whose $1.5 billion fixed-income portfolio contains preferred shares of Fannie and Freddie, said he's ``not interested'' in buying any more preferred securities.
Rising Costs
The market's tumble is making it more expensive for banks and brokers trying to raise fresh capital after taking $506 billion of writedowns and losses on the collapse of the subprime- mortgage market.
Sales of preferred securities in the U.S. have risen 48 percent this year to about $44 billion from more than $30 billion in the same period of 2007, according to data compiled by Bloomberg. The average yield as measured by the Merrill index has risen to 10.1 percent from 8.8 percent on Sept. 5 and 7.9 percent at the end of last year.
The takeover was ``unambiguously bad'' for preferred investors and ``likely set a precedent for any future rescue transactions,'' Kathleen Shanley, an analyst at bond research firm Gimme Credit LLC in Chicago, wrote in a Sept. 7 report.
Preferred shares of Washington-based Fannie and Freddie of McLean, Virginia were cut to the second-lowest rating by Standard & Poor's and Moody's Investors Service on Sept. 7. The grades were slashed 11 levels by S&P to C and 10 rankings to Ca by Moody's. Moody's rated their preferred stock Aa3, the fourth- highest grade, until July.
Biggest Losers
Freddie preferred shares have lost 83 percent the past two days, while Fannie's have declined 80 percent, the biggest losers in the Merrill index. The two companies account for about $24 billion of the $190 billion par amount in the index. Forty of the top 50 issuers have declined in the last two days.
The declines are particularly stinging for Fannie and Freddie investors because the companies have sold $20.4 billion of the preferred securities since November.
Paulson tried to calm preferred stock investors when he announced the rescue of the government-sponsored enterprises and said the takeover shouldn't have negative implications for the wider market.
``Preferred stock investors should recognize that the GSE's are unlike any other financial institutions and consequently GSE preferred stocks are not a good proxy for financial institution preferred stock more broadly,'' Paulson said in a Sept. 7 statement. ``The broader market for preferred stock issuance should continue to remain available for well-capitalized institutions.''
Lehman, Merrill
Lehman Brothers Holdings Inc. is down 42 percent, while Merrill Lynch has tumbled 16 percent.
``In the primary market it's going to be much more difficult for financials across the board,'' Hayden said. ``If Lehman Brothers thought they needed to go to the market and had any chance at all of issuing preferred stock to raise capital, it is now three times more difficult than it was last Friday.''
Mark Lane, spokesman for Lehman Brothers, and Danielle Robinson, spokeswoman for Merrill, declined to comment. Lehman and Merrill are both based in New York.
Investors will be ``gun-shy'' about buying preferred shares, said Thomas Houghton, who manages $2 billion of corporate bonds at Advantus Capital Management in St. Paul, Minnesota.
``There are a number of financial institutions that are experiencing distress right now, so the dividend on the common and the preferred share are going to be the first to go,'' he said.
Sept. 10 (Bloomberg) -- Crude oil jumped in New York as OPEC President Chakib Khelil called on members to stop producing more than the group's set quota after prices fell to almost $100 a barrel.
The Organization of Petroleum Exporting Countries is producing about 520,000 barrels a day more than their 28.8 million barrels limit, Khelil said. Oil has fallen 30 percent from a record $147.27 a barrel on July 11 as high prices and slowing global economic growth reduced demand for fuels.
``It's definitely a defensive measure to keep prices above $100,'' said Jonathan Kornafel, a director for Asia at Hudson Capital Energy. ``They don't want to see us go back to $140 or $150 but they want us over $100. It's a bit of a shock to the market and that's why we're up.''
Crude oil for October delivery climbed as much as $1.41, or 1.4 percent, to $104.67 a barrel on the New York Mercantile Exchange and traded at $104.62 at 11:45 a.m. Singapore time. The contract had fallen as much as $1.20, or 1.2 percent, to $102.06 a barrel prior to the OPEC announcement.
Crude in New York yesterday reached its lowest level since April 2 while Brent oil traded in London fell as low as $99 a barrel. Demand for fuels in the U.S., the world's largest oil consumer, has declined this year because of the higher prices. Traders have also become more concerned that a global economic slowdown will reduce demand for commodities including fuels.
``The current price is due to slower demand not oversupply,'' said Tetsu Emori, a fund manager with Astmax Ltd. in Tokyo. ``The oversupply is a result and not a reason for lower prices. This is an adjustment of supply and demand only. It will not make the market tight as a result.''
OPEC Sentiment
Brent crude oil for October settlement rose as much as $1.40, or 1.4 percent, to $101.74 a barrel. It was at $101.73 a barrel at 11:46 a.m. Singapore time. The contract earlier fell as low as $98.89 a barrel.
OPEC noted that a declining global economy and resultant falloff in oil demand along with more crude supply and the gains in the U.S. dollar had lowered prices. This means ``a shift in market sentiment causing downside risks,'' according to their statement after the meeting.
``Since the market is oversupplied, the conference agreed to abide by September 2007 production allocation (adjusted to include new members Angola and Ecuador and excluding Indonesia and Iraq) totaling 28.8 million barrels a day,'' OPEC said. ``Levels with which members committed to strictly comply.''
OPEC's quota for 12 members including Indonesia had been 29.673 million barrels a day. Indonesia's target had been 865,000 barrels a day, according to Bloomberg data.
OPEC members have increased production this year as Saudi Arabia, the world's largest producer, sold more barrels to balance shortfalls elsewhere and slake the developing world's growing thirst for crude. That's taken output above the group's agreed targets.
Sept. 10 (Bloomberg) -- Asian stocks fell for a second day, led by materials and shipping companies, after metals prices declined and cargo rates slumped on concern slowing global growth will curb demand for resources.
BHP Billiton Ltd., the world's largest mining company, and Mitsubishi Corp. tumbled more than 2 percent. China Cosco Holdings Co., the world's largest operator of dry-bulk ships, tumbled 9.1 percent. Macquarie Group Ltd. slumped 4.5 percent after Lehman Brothers Holdings Inc.'s talks to sell a stake to Korea Development Bank broke down.
``This is not a good time to make new investments in risky assets like stocks,'' said Hiroshi Morikawa, senior strategist at Japan's MU Investments Co., which manages about $14 billion. ``I will keep my money in cash or bonds because of the uncertainties in the global economy. I prefer to stay in a safe harbor.''
The MSCI Asia Pacific Index fell 0.7 percent to 117.88 as of 11:37 a.m. in Tokyo, extending yesterday's 2.2 percent loss. Materials and industrial stocks accounted for more than half of today's decline.
The Asian benchmark has tumbled 25 percent in 2008 as global financial companies posted losses in excess of $500 billion on a credit contraction.
Japan's Nikkei 225 Stock Average lost 1.1 percent to 12,269.54. China's CSI 300 Index jumped 1.9 percent, erasing earlier losses, after inflation cooled last month to the slowest pace in a year. All other regional benchmark indexes declined apart from Taiwan.
Metals Decline
U.S. stocks slumped yesterday, with the Standard & Poor's 500 Index falling 3.4 percent, the most since February 2007. In the previous session, the measure gained the most in a month after the government's takeover of Fannie Mae and Freddie Mac. S&P 500 futures were up 0.4 percent recently.
An index of materials producers fell 2.9 percent to the lowest since October 2006. BHP dropped 4.5 percent to A$34.42 in Sydney, the lowest since March 25. Korea Zinc Co., the world's second-biggest zinc refiner, retreated 3.3 percent to 116,500 won in Seoul. Mitsubishi Corp., a Japanese trading company that gets half its profit from commodities, slipped 2.5 percent to 2,525 yen, the lowest since Jan. 24.
A measure of six metals traded on the London Metal Exchange, including zinc, lost 2 percent to 3,272.8 yesterday, the lowest since June 27, 2006.
China Cosco plunged 9.1 percent to HK$10.64, extending yesterday's 7.6 percent decline. Mitsui O.S.K. Lines Ltd., Japan's largest operator of iron-ore ships, fell 2 percent to 1,058 yen.
Shipping Rates
The Baltic Dry Index, a measure of commodity-shipping costs, yesterday tumbled to its lowest in 15 months. The measure has plunged more than 50 percent from its May 20 record.
Neptune Orient Lines Ltd., operator of Southeast Asia's largest container line, lost 4.3 percent to S$2.03 in Singapore, the lowest since November 2006.
Signs of a slowing global economy have damped demand for commodities. The U.K. economy is contracting for the first time in at least a decade, the National Institute for Economic and Social Research said today. The group's clients include the Bank of England and the U.K. Treasury.
``It's hard to tell at the moment just how deep the global economic downturn is going to get,'' said Hideo Arimura, who overseas the equivalent $1.9 billion at Mizuho Asset Management Co. in Tokyo. ``Europe is in the most precarious position and its weakness is going to be a drag for other economies.''
Macquarie, Australia's biggest securities firm, slid 4.5 percent to A$42.79. Babcock & Brown Ltd., an Australian manager of infrastructure assets, lost 4.6 percent to A$2.26.
Hynix Rises
Lehman has been negotiating with potential investors about obtaining a capital infusion and selling devalued mortgage assets that contributed to the firm's $2.8 billion loss last quarter. S&P warned yesterday it may cut Lehman's credit ratings, saying it believes the company may report a ``substantial'' third- quarter loss.
``People worry that if Lehman is like that, how about the others?'' said Pankaj Kumar, who manages about $460 million as chief investment officer at Kurnia Insurans Bhd. in Petaling Jaya, outside Kuala Lumpur. ``There could be more. That definitely shakes confidence in the market.''
Lehman said it will announce third-quarter results and ``key strategic initiatives'' today in the U.S., a week earlier than planned.
Hynix Semiconductor Inc., the world's second-largest computer-memory maker, added 4.6 percent to 19,450 won in Seoul. The company said today it will cut output of NAND flash chips by as much as 30 percent this month after a glut drove down prices. Separately, main creditor Korea Exchange Bank said yesterday it will ask other banks to revive talks on selling their combined 36 percent controlling stake in Hynix.
Down the Rabbit Holeby Peter Schiff
In recent months, investors have been unjustly chastised for their lack of consistency. In truth, they have an unblemished record of drawing the wrong conclusions. Last week's 2nd quarter GDP report provides the freshest evidence of market cluelessness.
In its report, the Commerce Department stunned economy watchers by showing a 3.3% annualized increase in 2nd Quarter GDP. The robust growth apparently wrong-footed those expecting further recessionary signals, lent further strength to the current dollar rally, and encouraged previously cautious investors to take another look at U.S. stocks. The strong number also bolstered claims by the Bush administration and the McCain campaign that a recession is primarily a psychological phenomenon. These conclusions would be at least quasi-logical if they were not based on a complete misreading of the report.
Without raising an eyebrow on Wall Street or in the press, the GDP deflator, used in the report to downwardly adjust GDP to account for inflation, was shown at just 1.2% annualized.... the lowest deflator in ten years. In other words, to arrive at a 3.3% growth rate, the government assumed that inflation is running at a ten-year low! In contrast, the latest reading on consumer prices (CPI) in the second quarter shows year-on-year inflation running at a 5.6% rate, a seventeen-year high! In fact, for the second quarter, the same time period measured by the GDP deflator, prices actually rose at an even faster pace of 8.0% annualized. How can it be that inflation is simultaneously running at a seventeen-year high and a ten-year low? Welcome to the Alice in Wonderland world of government statistics.
You would think that this statistical bombshell would raise the hackles of the press. Think again. Not only did the hawk-eyed media completely miss the story last week, they have totally ignored our subsequent attempts to show them the light (with the exception of the N.Y. Post's John Crudele – who has long suspected a ruse). Although none of the reporters we spoke with could explain why inflation could run at a 10 year low and a 17 year high at the same time, they did not deem the anomaly sufficiently noteworthy. Having been ignored by reporters, I then tried the opinion pages. Unfortunately the piece that we prepared on the subject was rejected this week by all the leading national newspapers.
Reporter Michael Mandel did note the head scratcher on a Businessweek blog posting last Friday. As a partial explanation he pointed out the CPI measures the prices of what we buy, and the GDP deflator measures the prices of what we make. Although this certainly sheds some light, it offers no real explanation. Excluding imports and exports, both measures are determined by the same forces, and should move in relative harmony. If anything, the costs of what we make should be outpacing the costs of what we buy. Producer prices are now rising faster than consumer prices (the latest annual reading of the Producer Price Index 'PPI' being 13.2% annualized from the 2nd quarter), which helps explain why corporate profits have fallen drastically. In addition, from July 2007 through July 2008 (the latest data available) import and export prices have risen 21.6% and 10.2% respectively. In other words, no matter what numbers you use, the 1.2% GDP deflator simply doesn't add up.
I have often argued that government statics are dubious, particularly those related to inflation. But here is an example where they are not even consistent! If we simply use second quarter CPI to adjust nominal second quarter GDP for inflation, the number would have registered a 3.5% annualized decline.
Such horrific GDP numbers are much more consistent with the anecdotal recession evidence that Wall Street and Washington want us to ignore (confirmed by today's weak jobs report which included the unemployment rate spiking to 6.1%, a five-year high). However, with Orwellian propaganda, our government fabricates GDP growth out of thin air without the smoke and mirrors traditionally required for such an elaborate illusion. All that is required is to put out ludicrous statistics and hope no one notices. Given that this strategy appears to be working, expect future government numbers to get even more outrageous. After all, if they can get away with this, they can likely get away with anything.
Investors relying on this data and reacting to the global economic slowdown by buying dollars and other U.S. based assets while selling gold, commodities, and foreign assets, are jumping out of the frying pan right into the fire. My guess is that it will not be much longer before they feel the heat.
For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read Peter Schiff's book "Crash Proof: How to Profit from the Coming Economic Collapse." Click here to order a copy today.
More importantly, don't wait for reality to set in. Protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com, download our free research report on the powerful case for investing in foreign equities available at www.researchreportone.com, and subscribe to our free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp.
Peter Schiff C.E.O. and Chief Global Strategist
Euro Pacific Capital, Inc.
Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly. As a result of his accurate forecasts on the U.S. stock market, commodities, gold and the dollar, he is becoming increasingly more renowned. He has been quoted in many of the nations leading newspapers, including The Wall Street Journal, Barron's, Investor's Business Daily, The Financial Times, The New York Times, The Los Angeles Times, The Washington Post, The Chicago Tribune, The Dallas Morning News, The Miami Herald, The San Francisco Chronicle, The Atlanta Journal-Constitution, The Arizona Republic, The Philadelphia Inquirer, and the Christian Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg. In addition, his views are frequently quoted locally in the Orange County Register.
Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkley in 1987. A financial professional for seventeen years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, he is a highly recommended broker by many of the nation's financial newsletters and advisory services.
Paulsons Quick Draw
by Peter Schiff
Treasury Secretary Henry Paulson, the man who said that subprime was contained and that the Bazooka in his pocket would never be used, now assures us that the bailout of Fannie Mae and Freddie Mac will be costless to taxpayers. Despite the near euphoria that the plan has sparked on Wall Street, the move will go down in history as the biggest policy blunder of all time, and will be credited as a pivotal point in the financial collapse of the American economy. The ultimate cost to Unites States citizens will be in the range of hundreds of billions of dollars, perhaps more.
The original idea that gave birth to Freddie and Fannie, which is to make housing more affordable to average Americans, should now be seen as farcical. Their new goal is to keep housing prices high. Absent Freddie and Fannie, housing prices would fall sharply and the mortgage market would stabilize. Americans would once again be able to buy affordable houses with mortgages they could actually repay - just like their grandparents did. Instead they will keep overpaying for houses, burdening themselves with excessive payments in the process, and ultimately sticking taxpayers with the bill when they default.
In contrast to Paulson's continuous misreading of the market, I have consistently predicted the failure of Freddie and Fannie. I did so in my book Crash Proof, and in numerous speeches, commentaries and television appearances. If you have not yet done so, click here to watch these eight YouTube clips of my presentation back in 2006 to a convention of mortgage bankers. I also was quick to point out that Paulson's Bazooka would not remain holstered for long. See the following two commentaries "Armed and Dangerous" and "Congress Taps Paulson's Helmet" available here.
There is absolutely no substance to Paulson's insistence that based on the government's first claim on the future profits of Fannie and Freddie, the plan offers protection for taxpayers. There will be no future profits, just more heavy losses. Americans will now have unlimited ability to continue to overpay for houses and commit to mortgages they can't afford. In fact, the plan insures that eventual public sector losses will vastly exceed those that would have befallen the private sector in a free-market resolution.
Paulson claims that his goal is to stabilize the mortgage market. But the best way to do so would be to allow housing prices to fall to a market clearing level. As long as home prices remain artificially high, the risks of mortgage lending will keep credit tight, and the high costs of mortgage payments will keep potential buyers on the side-lines. With private lenders justly cautious, the government intends to hold open the lending spigots, without the pesky concerns over losses or financial risk. The hope is that the new lending will prevent home prices from falling further. It won't work. The government "solution" will simply delay the fall of artificially high home valuations and temporarily preserve the illusion of prosperity.
In order to preserve current home prices, the government will be forced to maintain the lax lending standards that got us into this mess in the first place. Since all the losses will now be borne by taxpayers, those lax standards will be much more problematic. The moral hazard that existed prior to this bailout has become that much more hazardous. Every mortgage now insured by Fannie and Freddie is the equivalent of a U.S. Treasury bond. This allows anyone to borrow on the full faith and credit of the U.S. government so long has the money is used to buy a house. In addition, mortgage lending will now be a government function, run with Post Office-like efficiency.
Of course the biggest collateral damage caused by Paulson's bazooka is the large hole ripped through the already tattered U.S. Constitution. If the government can do this, does anyone believe there is anything it can't do? In effect the Federal government now has absolute power to corrupt absolutely.
No comments:
Post a Comment