Nouriel Roubini has a rant at RGE Monitor about the Fannie/Freddie bailouts:

So now Comrades Bush, Paulson and Bernanke (as originally nicknamed by Willem Buiter) have now turned the USA into the USSRA (the United Socialist State Republic of America). Socialism is indeed alive and well in America; but this is socialism for the rich, the well connected and Wall Street. A socialism where profits are privatized and losses are socialized with the US tax-payer being charged the bill of $300 billion.

I have no problem with the characterization of the Fannie/Freddie bailouts as socialism on steroids. Unfortunately, Roubini goes on to blame free market capitalism for the Fannie/Freddie mess:

This biggest bailout and nationalization in human history comes from the most fanatically and ideologically zealot free-market laissez-faire administration in US history. These are the folks who for years spewed the rhetoric of free markets and cutting down government intervention in economic affairs. But they were so fanatically ideological about free markets that they did not realize that financial and other markets without proper rules, supervision and regulation are like a jungle where greed – untempered by fear of loss or of punishment – leads to credit bubbles and asset bubbles and manias and eventual bust and panics.

Roubini has been right about a lot over the last couple of years and he deserves the kudos he’s been getting in the press, but this is just absurd. Fannie and Freddie did not become the bloated giants that required a taxpayer bailout because of lassez faire free market economics. These quasi government institutions were actually the antithesis of free market capitalism and free market advocates have been warning about them for years.

There is a tendency by many to look at what is going on in our economy and conclude that free markets just don’t work, but that view ignores the fact that we haven’t had a free market for a long time. The credit and asset bubbles that Roubini rants about were not caused by a lack of regulation; they were caused primarily by the Federal Reserve. And the Federal Reserve would not exist in a free market, lassez faire economy.

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