Fannie Mae and Freddie Mac. They sound like a minstrel act, all burlesque shuffle and black face, and as financial institutions in an allegedly market-driven economy, they are just as anachronistic. But the collapse of America's state-backed mortgage lenders is an American political tragedy, all the more so because no good is likely to come of it.
Last week, Henry Paulson, the treasury secretary, stood in front of the Treasury building and announced that the US government would, if necessary, guarantee the technically insolvent mortgage companies' US$5 trillion (Dh18tn) in home loans. Thus, two inept bureaucracies completed their journeys from de jure to de facto wards of the state.
The move also advanced a power grab by the federal government not dreamed of since Richard Nixon settled into his second term as president. In March, after bailing out the investment bank, Bear Stearns, while extending emergency credit lines to its rivals, the Treasury and Federal Reserve added market stabilisation to their mandate alongside their traditional roles as price setters. Now, Washington has extended that new responsibility to include government-chartered agencies like Fannie and Freddie, which account for nearly half of the US mortgage market.
Economists, most of whom agree that the nation's twin mortgage giants should have been broken up years ago, reluctantly supported Mr Paulson's plan as an unavoidable response to a severe liquidity crisis. They also expressed concerns that it could evolve in the same self-aggrandising way as did the Monroe Doctrine, Washington's 19th-century manifesto that declared the continental US off limits to foreign colonisers, only to use it as a legal basis for invading Mexico.
Investors seemed equally wary, dumping not only Fannie and Freddie shares, but also stock in commercial banks. Credit protection rates - a once obscure Wall Street indicator that has emerged into a closely watched indicator - rose last week for deposit-taking institutions as well as big investment banks, following the collapse of a small commercial lender in California. In plotting their investment strategies, some wealthy individuals are Balkanising their savings into separate deposits of no more than $100,000 - the maximum amount the government will insure against bank failure.
Ben Bernanke, the Fed chairman, spent much of last week grappling with his new mandate, cobbling together the Fannie and Freddie bailout, investigating ways to improve consumer protection rules for mortgage lenders and testifying to congress on everything from oil markets to credit card regulation. Mr Bernanke, once a disciplined monetarist, was wasting no time converting to Keynesianism.
For those concerned about the sustainability of the world's largest capitalist economy, this is serious stuff. By widening its regulatory net for the sake of massive bailouts, Messrs Paulson and Bernanke set a dangerous precedent, and toward what end? When asked during a congressional hearing whether senior officials at Fannie and Freddie would be held to account, Mr Paulson said he was "not looking for scapegoats". Fine. But what about officials guilty of incompetence, corruption, or both?
Mr Paulson's reply was interpreted by some on the Beltway as a signal that the historically troubled mortgage companies would once again get a free pass.
For years, America's financial mandarins have warned of Fannie and Freddie preponderance. Alan Greenspan and John Snow, predecessors to Mr Bernanke and Mr Paulson respectively, frequently told lawmakers that the two agencies could swamp the US economy if they did not undergo an aggressive overhaul. (Mr Greenspan did, however, praise their pioneering of the mortgage-backed security, which fuelled the country's housing bubble.) In 2004, a federal oversight commission slammed Fannie Mae for inaccurate accounting standards and mismanagement. Last May, Franklin Raines, the Fannie Mae chief executive, stepped down amid an accounting oversight estimated at $6.3 billion. Raines was making $20 million a year at the time.
So what's keeping Fannie and Freddie afloat? In a word, patronage. The revolving kitty at the heart of Victorian-era machine politics has, at least in this case, been modernised and made bipartisan for a more refined generation of political suites. Democrats love the two agencies for making home ownership a reality for low-income families, Republicans for the business and subsidies they generate.
Since taking control of congress, Democratic leaders have resisted Republican calls to reform Fannie and Freddie. Investment bankers at firms like Goldman Sachs, which Mr Paulson chaired before moving to the Treasury, are no doubt relishing the prospect of scooping up distressed Fannie and Freddie assets.
Everyone has a stake in keeping America's mortgage Leviathan intact. Everyone, that is, expect for taxpayers who will get stiffed with the bill.
@Email:sglain@thenational.ae
The bio
Studied up to grade 12 in Vatanappally, a village in India’s southern Thrissur district
Was a middle distance state athletics champion in school
Enjoys driving to Fujairah and Ras Al Khaimah with family
His dream is to continue working as a social worker and help people
Has seven diaries in which he has jotted down notes about his work and money he earned
Keeps the diaries in his car to remember his journey in the Emirates
The biog
Hobbies: Salsa dancing “It's in my blood” and listening to music in different languages
Favourite place to travel to: “Thailand, as it's gorgeous, food is delicious, their massages are to die for!”
Favourite food: “I'm a vegetarian, so I can't get enough of salad.”
Favourite film: “I love watching documentaries, and am fascinated by nature, animals, human anatomy. I love watching to learn!”
Best spot in the UAE: “I fell in love with Fujairah and anywhere outside the big cities, where I can get some peace and get a break from the busy lifestyle”
The biog
Name: Samar Frost
Born: Abu Dhabi
Hobbies: Singing, music and socialising with friends
Favourite singer: Adele
Tips to keep your car cool
- Place a sun reflector in your windshield when not driving
- Park in shaded or covered areas
- Add tint to windows
- Wrap your car to change the exterior colour
- Pick light interiors - choose colours such as beige and cream for seats and dashboard furniture
- Avoid leather interiors as these absorb more heat
Heavily-sugared soft drinks slip through the tax net
Some popular drinks with high levels of sugar and caffeine have slipped through the fizz drink tax loophole, as they are not carbonated or classed as an energy drink.
Arizona Iced Tea with lemon is one of those beverages, with one 240 millilitre serving offering up 23 grams of sugar - about six teaspoons.
A 680ml can of Arizona Iced Tea costs just Dh6.
Most sports drinks sold in supermarkets were found to contain, on average, five teaspoons of sugar in a 500ml bottle.
Europe’s rearming plan
- Suspend strict budget rules to allow member countries to step up defence spending
- Create new "instrument" providing €150 billion of loans to member countries for defence investment
- Use the existing EU budget to direct more funds towards defence-related investment
- Engage the bloc's European Investment Bank to drop limits on lending to defence firms
- Create a savings and investments union to help companies access capital
2025 Fifa Club World Cup groups
Group A: Palmeiras, Porto, Al Ahly, Inter Miami.
Group B: Paris Saint-Germain, Atletico Madrid, Botafogo, Seattle.
Group C: Bayern Munich, Auckland City, Boca Juniors, Benfica.
Group D: Flamengo, ES Tunis, Chelsea, Leon.
Group E: River Plate, Urawa, Monterrey, Inter Milan.
Group F: Fluminense, Borussia Dortmund, Ulsan, Mamelodi Sundowns.
Group G: Manchester City, Wydad, Al Ain, Juventus.
Group H: Real Madrid, Al Hilal, Pachuca, Salzburg.
Manikarnika: The Queen of Jhansi
Director: Kangana Ranaut, Krish Jagarlamudi
Producer: Zee Studios, Kamal Jain
Cast: Kangana Ranaut, Ankita Lokhande, Danny Denzongpa, Atul Kulkarni
Rating: 2.5/5
Wednesday's results
Finland 3-0 Armenia
Faroes Islands 1-0 Malta
Sweden 1-1 Spain
Gibraltar 2-3 Georgia
Romania 1-1 Norway
Greece 2-1 Bosnia and Herzegovina
Liechtenstein 0-5 Italy
Switzerland 2-0 Rep of Ireland
Israel 3-1 Latvia
MATCH INFO
Inter Milan 2 (Vecino 65', Barella 83')
Verona 1 (Verre 19' pen)
A State of Passion
Directors: Carol Mansour and Muna Khalidi
Stars: Dr Ghassan Abu-Sittah
Rating: 4/5
The specs: Volvo XC40
Price: base / as tested: Dh185,000
Engine: 2.0-litre, turbocharged in-line four-cylinder
Gearbox: Eight-speed automatic
Power: 250hp @ 5,500rpm
Torque: 350Nm @ 1,500rpm
Fuel economy, combined: 10.4L / 100km
BOSH!'s pantry essentials
Nutritional yeast
This is Firth's pick and an ingredient he says, "gives you an instant cheesy flavour". He advises making your own cream cheese with it or simply using it to whip up a mac and cheese or wholesome lasagne. It's available in organic and specialist grocery stores across the UAE.
Seeds
"We've got a big jar of mixed seeds in our kitchen," Theasby explains. "That's what you use to make a bolognese or pie or salad: just grab a handful of seeds and sprinkle them over the top. It's a really good way to make sure you're getting your omegas."
Umami flavours
"I could say soya sauce, but I'll say all umami-makers and have them in the same batch," says Firth. He suggests having items such as Marmite, balsamic vinegar and other general, dark, umami-tasting products in your cupboard "to make your bolognese a little bit more 'umptious'".
Onions and garlic
"If you've got them, you can cook basically anything from that base," says Theasby. "These ingredients are so prevalent in every world cuisine and if you've got them in your cupboard, then you know you've got the foundation of a really nice meal."
Your grain of choice
Whether rice, quinoa, pasta or buckwheat, Firth advises always having a stock of your favourite grains in the cupboard. "That you, you have an instant meal and all you have to do is just chuck a bit of veg in."
Overview
Cricket World Cup League Two: Nepal, Oman, United States tri-series, Tribhuvan University, Kathmandu
Fixtures
Wednesday February 5, Oman v Nepal
Thursday, February 6, Oman v United States
Saturday, February 8, United States v Nepal
Sunday, February 9, Oman v Nepal
Tuesday, February 11, Oman v United States
Wednesday, February 12, United States v Nepal
RESULTS
6.30pm: Longines Conquest Classic Dh150,000 Maiden 1,200m.
Winner: Halima Hatun, Antonio Fresu (jockey), Ismail Mohammed (trainer).
7.05pm: Longines Gents La Grande Classique Dh155,000 Handicap 1,200m.
Winner: Moosir, Dane O’Neill, Doug Watson.
7.40pm: Longines Equestrian Collection Dh150,000 Maiden 1,600m.
Winner: Mazeed, Richard Mullen, Satish Seemar.
8.15pm: Longines Gents Master Collection Dh175,000 Handicap.
Winner: Thegreatcollection, Pat Dobbs, Doug Watson.
8.50pm: Longines Ladies Master Collection Dh225,000 Conditions 1,600m.
Winner: Cosmo Charlie, Pat Dobbs, Doug Watson.
9.25pm: Longines Ladies La Grande Classique Dh155,000 Handicap 1,600m.
Winner: Secret Trade, Tadhg O’Shea, Ali Rashid Al Raihe.
10pm: Longines Moon Phase Master Collection Dh170,000 Handicap 2,000m.
Winner:
