September 8, 2008 8:04 AM

Socialism, Bailout or Fear of Foreign Investors?

There are very big fault lines in the American economy, with unemployment rates at a 5 year high and this weekend's nationalization of Freddie Mac and Fannie Mae, which together own or guarantee over $5 trillion worth of housing mortgages. But the nation remains focused on Sarah Palin.

It appears that the Bush Administration's hand was forced by foreign investors, who are the biggest lenders to these housing agencies. Conservatives have long hoped to eliminate the agencies, arguing that private markets are adequate. Lenders to the agencies, and those who invest in their securities, are the clearest winners, as their risk is now eliminated. Struggling borrowers get nothing directly from the bailout, but future borrowers would have suffered a reduction in lending possibilities without it.

Other than foreighn investors, the biggest winner is the Bush Administration, which props up the financial markets during the last months of its existence, while saddling taxpayers and a future Administration with what is likely to be costs of over $100 billion. This is completely unprecedented.