Proof in the Preference

Treasury Secretary Paulson is now facing the enormity of the morass of toxic debt. Consequently, he has backed down from buying up all of the banks securitized mortgage instruments because they are basically worthless. The fact that our economy is a FIRE economy is proved by the extension of more credit to insurance giant AIG and the Regime's refusal to use some of the initial $700 billion in economic aid to bailout General Motors. The explanation for how the money is spent lies in which class the aid benefits the most. Paulson has comitted $265 billion of the $700 billion approved by Congress in TARP (Troubled Asset Relief Program). All of it is going to banks and purchasing $40 billion in preferred shares of AIG. Protecting AIG from failure, which underwrites trillions in investment derivatives, benefits rentiers. Keeping GM going would benefit thousand of skilled workers by keeping them employed. The regime is also balking at helping homeowners facing default. The plan announced so far only helps homeowners who are already delinquent on conventional mortgages owned or guaranteed by Fannie Mae and Freddie Mac. The failure rate for conventional loans is about 2% compared to the 20% for adjustable rate sub prime loans. Unfortunately, there are a massive amounts of those loans at risk of default, a condition which will continue to exert a depressive effect on the national housing market and thereby the economy in general. Some government officials notably Sheila Bair, chairperson of the FDIC, advocated a much bigger rescue effort for home buyers planning $50 billion to modify mortgage terms, but discussions with Treasury failed. It all about whose ox is being gored.