Tuesday, September 9, 2008

Fannie And Freddie Part Of A Long-Time Effort

“All of the newspapers have missed something,” with Fannie and Freddie in mind. “They have all missed this bigger point: This huge trend snakes its way through financial history.
“This action by the U.S. government does not really signify any sea change in financial markets. It’s just another step in a long journey on the same path. If you read financial history, you come to appreciate this overwhelmingly powerful trend. As Freeman Tilden wrote in his 1935 book A World in Debt:
“The whole progress of the legislative attitude toward the debtor, from the Roman Republic to the present day, has been steadily, though with occasional backward lapses, toward making debt easier to incur, lightening the burden of carrying and softening the consequences of default.”
“What does it all mean and how does it all end?” I suspect we are on a path similar to that of Argentina. One day, we’ll have some major Argentine-style financial crisis. We’ll have Argentine inflation and a similar loss of faith in the banking system and the currency. The government will chew away and destroy a lot of wealth in the process.”

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