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Domestically, the relationship between the national government and the nation's economy has changed more in recent weeks than at any time since the Depression. During the New Deal, the pell-mell expansion of government supervision of economic life was propelled primarily by fears generated by cascading events. But another propellant was a constellation of doctrines—about capitalism's "contradictions," "market failures" and the need for socialism, or at least "planning" through government control of the economy's "commanding heights." Today, the "social safety net"—a phrase that originally described aid for widows and orphans—is being radically enlarged to provide security for investors in large financial institutions. This enlargement is being improvised by conservative Republicans whose only doctrine is the theory of TBTF. The theory is that this or that institution is too big to (be allowed to) fail.
Today's surge of "conservative corporatism" began with the Bush administration's brokering of JPMorgan Chase's takeover of Bear Stearns. This let loose the argument—a non sequitur—that if the administration thinks the national interest is implicated in the survival of this or that big economic entity, the administration is morally obliged at least to acquiesce in Congress's solicitude for individuals with mortgage problems. The administration has restricted the free practice of capitalism between consenting adults—the short selling of the stocks of 19 financial institutions. And the administration wants Congress to cede to it the power of the purse, granting it an unlimited call on federal funds to guarantee Fannie Mae's and Freddie Mac's obligations.
The theory, which might be right, is that such a guarantee has always been "implicit" in the existence of such "government-sponsored enterprises" that are created by government to do something it favors, in this case, democratize access to housing loans. The theory also is that having the resources to bail out those two entities will make bailing them out unnecessary because investors will not lose confidence. Nevertheless, this looks like semi-socialism—keeping profits private, but socializing losses.
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