Man, I was carrying that title around with me for five miles this morning. Good to be rid of it. And actually I was thinking about economic Darwinism all weekend. Sad but true. I wrote a thoughtful (at least for me) post on Saturday about Fannie Mae, Freddie Mac and the housing crisis. The point — in my opinion — was that the government was going to have to step in and make sure Fannie and Freddie didn’t go face down (or is it belly up?) this morning.
I knew few would read that post on a Saturday. And that was part of the point. PR people — and others — love to run flags up the flagpoles on Fridays to see how, or even if, anyone salutes over the weekend. That used to be a pretty good strategy when the only game in town was the Saturday newspaper. Now I’m not sure. I was at Blossom enjoying the Cleveland Orchestra last night when I received a tweet telling me that the Bush administration had decided to step up to the plate and do whatever is necessary to make sure Fannie and Freddie are still standing when the opening bell rings on Wall Street this morning.
Here’s from The New York Times — “Treasury Acts to Save Mortgage Giants”:
Alarmed by the sharply eroding confidence in the nation’s two largest mortgage finance companies, the Bush administration on Sunday asked Congress to approve a sweeping rescue package that would give officials the power to inject billions of federal dollars into the beleaguered companies through investments and loans.
OK. Nobody wants to turn on CNBC this morning to see Fannie and Freddie floating belly up (or is it face down?) in the deep end of the debt pool. And a disclaimer: I own Fannie (or is it Freddie?) bonds in my IRA. My esteemed financial adviser, Mr. Pat, Senior Vice President for Wealth Creation Destruction, won’t buy U.S. Treasury bonds. If they are good enough for the government of China, how come I can’t own any? I digress.
Anyway, there are a lot of points here, not the least of which is that this nation is in a serious economic mess. But beyond that consider this. If the government is going to step in and eliminate all risk — then why should managers, investors, home buyers, etc. make thoughtful decisions? That idea of economic Darwinism isn’t really mine. People who really understand these things have been opining about it for some months now.
Here’s from “There’s No Reason To Panic” by Peter J. Wallison on the opinion page of the Wall Street Journal online this morning:
Although they are owned by shareholders, Fannie and Freddie are government sponsored enterprises, or GSEs, chartered by Congress to perform a government mission: providing a national market for mortgages and enhancing the availability of affordable housing. This, together with a brace of special statutory exemptions and the fact that the U.S. government has always bailed out its GSEs, has led the capital markets to believe, correctly, that the U.S. government will never allow Fannie and Freddie to fail.
The result has been a complete loss of market discipline, uncontrolled growth, and the development of two giant companies whose deteriorated financial condition now threatens the stability of both the U.S. and the world economy. The story of Fannie and Freddie is a cautionary tale about the moral hazard created by government support for private institutions — a tale we saw played out in the S&L debacle less than 20 years ago, and one we may be about to inflict on ourselves again.
More bailouts ahead? We’ll see.
In the meantime, I guess Budweiser shows that economic Darwinism is still alive. Anheuser-Busch has agreed to be acquired by Belgian-based brewer InBev for $52 billion. Bud could wrap itself in the American flag all it wanted, but after years of pathetic financial performance and shareholder returns, the company’s shareholders looked at the all-cash $70-a-share offer and apparently said: “Let’s drink up.” Or something. You get the point.
So now — according to anonymous sources — the company is going to be called Anheuser-Busch-InBev. (Next month I guess we’ll add GM.) The Associated Press reported that Anheuser-Busch didn’t return messages asking for confirmation of that Sunday night. Guess the PR team wasn’t working over the weekend. Or maybe they were taking the flags off the flagpoles.
So now what. Is it going to be Stella Artois Stadium in St. Louis? Hey, remembered what happened to the Jake.
And I probably could have helped save Budweiser last night. I was in line to get a brew during intermission. The sign said: Bud Light — $8.
Nah. Here’s to you Stella. This one’s for you.