Fannie and Freddie nationalised lets take over the rest

Marxist Analysis · 2008-09-08

Core Argument

The central thesis is that the US government's effective nationalisation of Fannie Mae and Freddie Mac in September 2008 was not a socialist measure but a state rescue of the capitalist system from its own internal contradictions. The article argues that this bailout reveals the class character of the state: when working people face hunger, homelessness, and rising bills, the cupboard is bare; when the banking system faces collapse, "unlimited liquidity" materialises instantly. The claim is that this is a classic crisis of capitalism reflected in the financial arena, not merely a banking sector problem, and that the poison has entered the bloodstream of the system. The political conclusion follows directly: if the state can nationalise the losses and guarantee the debts of finance capital, the working class should demand the genuine socialisation of the banking system as part of a programme for socialist transformation.

Theoretical Grounding

The analysis draws on the Marxist theory of capitalist crisis, particularly the understanding that financial crises are not external shocks or accidents but expressions of contradictions rooted in the accumulation process. The article deploys the concept of fictitious capital implicitly: Fannie and Freddie's $62 trillion in credit default swaps against $5.4 trillion in actual mortgage holdings is a house of cards, a pyramid of leveraged claims on future surplus value that bears no relation to underlying value creation. The leverage ratios cited — 50:1 for the GSEs, 12.5:1 for typical banks — illustrate Marx's observation that the credit system's function is to stretch the limits of accumulation until it snaps. The argument sits firmly in the Marxist tradition that sees the state as a committee for managing the common affairs of the bourgeoisie, not as a neutral arbiter. It also echoes Lenin's and Hilferding's analyses of finance capital, where the fusion of industrial and banking capital creates institutions so large that their failure threatens the entire social order, forcing the state to intervene on capital's behalf.

Conjunctural Relevance

The article is written at a precise conjuncture: 8 September 2008, days after the US Treasury placed Fannie Mae and Freddie Mac into conservatorship. The specific data points are striking. There are $12 trillion in outstanding US mortgages, nearly half held or guaranteed by the two GSEs. Their leverage is estimated at 50 times assets, meaning a 2% default rate on their loan portfolio would render them insolvent. Eight million US households are already in negative equity. Unemployment has officially broken 6% and is rising. US banks need to roll over $800 billion in medium-term debt by the end of 2009. The article quotes Kenneth Rogoff predicting "a whopper" — one of the big investment banks going under. This prediction would be fulfilled within a week, when Lehman Brothers collapsed on 15 September 2008. The article's conjunctural insight is that the crisis is not contained to sub-prime mortgages or to the US housing market; it is spreading to the real economy through rising unemployment and falling household wealth. The piece also identifies the international dimension: UK banks held sliced-and-diced Fannie and Freddie securities, explaining why London markets soared at the bailout announcement.

Where the Argument Continues

This article is part of a sequence Mick Brooks wrote through 2008 tracking the financial crisis as it unfolded. The earlier piece referenced — "Why you should worry about Fannie and Freddie" (July 2008) — predicted the nationalisation that this article confirms. The broader corpus includes Brooks's "Financial meltdown: another day, another finance house bites the dust" (March 2008) and "1929: Can it happen again?" (March 2008), which establish the historical comparison to the Great Depression. Michael Roberts's "Capitalism beared" (March 2008) provides complementary analysis of the tendency of the rate of profit to fall as the underlying driver. The argument continues in later IDOM articles on the Eurozone crisis, the 2009-2010 Greek debt crisis, and the post-2008 period of quantitative easing and low interest rates, where the same dynamic of socialising losses while privatising profits recurs. The political conclusion — "take over the banks as part of a programme for the socialist transformation of society" — is developed in the RCI's broader programme for the nationalisation of the financial system under workers' control.

Connections

This article should be read alongside Marx's analysis of the credit system in Volume 3 of Capital, particularly the chapters on fictitious capital and the role of banks. Hilferding's Finance Capital provides the theoretical framework for understanding the fusion of banking and industrial capital that makes institutions like Fannie and Freddie "too big to fail." Lenin's Imperialism, the Highest Stage of Capitalism connects the export of finance capital to the international transmission of crisis — the reason UK banks held US mortgage-backed securities. For the contemporary conjuncture, Adam Tooze's Crashed provides the definitive historical account of the 2008 crisis and its aftermath, confirming the pattern Brooks identifies: state rescue of finance capital followed by austerity for working people. The article also connects to later Marxist analyses of the 2023 regional banking crisis in the US and the 2023 Credit Suisse/UBS merger, where the same pattern of socialised losses and privatised gains repeated itself.

Key Quotes

1. "The Financial Times has hailed the effective takeover of Fannie Mae and Freddie Mac by the US government as 'what could become the world's biggest ever financial bail-out.' Treasury secretary Henry Paulson has promised he will pump in 'unlimited liquidity.' Don't you wish the government would grant you unlimited liquidity? When it comes to the food and fuel bills of the poor and the working class, the British and American governments find that the cupboard is bare."

2. "Fannie and Freddie are banks that are levered between 40 and 50 times. I can think of two hedge funds, Carlyle Capital and Long Term Capital Management, that had leverage at those levels. They both went bankrupt, as will any such levered business."

3. "The sub-prime mortgages did not remain just a little local difficulty for finance capital. The mortgages on the GSEs' books were sliced and diced and sold all round the world in the form of fantastically arcane financial instruments."

4. "What we see is a classic crisis of capitalism reflected in the financial arena. As the sharp increase in American jobless figures reminds us, it won't remain confined to finance but will spread to the real economy."

5. "Finance capital and the whizz kids in the City were held up to us as the masters of the universe, as 'wealth creators.' Now we see them as hapless bums always begging for a handout. It's high time to nationalise the banks."

6. "The establishment is being forced to take over banks to save the rest of their system. If it survives, all it promises working class people is more hardship. It's time to take over the banks as part of a programme for the socialist transformation of society."