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Original Debt

07 Sep 2008

The US today explicitly backed all of Frannie’s debt. All of it. Sovereign wealth funds in Asia are quite happy. I guess they would be, since this will delay the riots that should rightly occur in protest of the business model of taxing people so that they can invest their money in fraudulent American mortgage debt.

I, on the other hand, take a more grim view. Fannie and Freddie have outstanding bonds worth more than 5 trillion. How much of that is actually covered by their performing loans? It’s utterly impossible to say, and the treasury, while admitting that there were not-quite-illegal accounting tricks to delay reporting losses, has neglected to mention how bad the picture really is. I wonder if they really know.

In case you’re wondering what it all means, every American taxpayer is now on the hook for some $47,000. An undetermined amount of that will be covered by Frannie income. That amount does not include social security or medicare. Fully one-third of that $47k are these ridiculous Frannie MBS’s. The percentage of that we can expect to be covered can’t be estimated , since these now-public-property entities don’t seem to have any meaningful reporting requirements.

Consider: My niece was born in April (woohoo!) She was born on American soil. This means she’s American, and, adjusting for inflation, she can expect to be personally on the hook for more than $65,000 in federal debt the day she starts her first high school McJob at 14. Naturally, this applies whether she lives in the US or not. All of the things this money bought–bridges, roads, dead Iraqi children and, as of today, overpriced McMansions 110 miles outside of Phoenix–will all be crumbling into disrepair by the time she might want them (although I’m rather hoping she never really wants any dead Iraqi children; I never did).

My niece was born into Original Debt. If Original Sin is what dooms us to death, Original Debt is what dooms us to taxes–why shouldn’t the two universal constants both begin at birth, after all? It worked for feudalism, after all.

Original Debt, like Original Sin, has its origins in the foolish actions of mankind, tempted by low-hanging fruit. Fortunately, it has no particular misogynistic connotations: today’s batch of fools, for example, are balding treasury technocrats.

Original Debt is stickier than Original Sin. Original Sin requires an hour a week to fix, or to simply stop being catholic. My niece’s Original Debt will require from 1/4th to 1/3rd of her every working hour, for life. And there’s no converting: Americans who renounce citizenship are on the hook for taxes for 10 further years, and gaining citizenship elsewhere is not easy.

And just like Original Sin, Original Debt is not not a legal liability, but a moral responsibility. Many religions believe that intent is not as important as action. In that sense, my niece, at her first job, would be culpable for almost everything America has done in the last 40 years. She’ll pay for wars that were fought before she was born. She’ll pay for the uncomfortable retirement of, statistically, her very own 1.3 or so retired boomers. She’ll pay for levees in New Orleans and bridges to nowhere, prisons to hold drug offenders and university research facilities, nuclear bombs and fusion research, drug enforcement helicopters in Columbia and, of course, speculator’s homes in half-built subdivisions in Ohio. She’ll pay the interest on the debt that financed all of these things, and her moral choices will, in sense, be thusly made for her.

It’s arbitrary. It’s unfair. Ethics aside, it’s completely unrealistic to expect her or anyone else her age to pay off the debts we are running up today. We’ll see how that goes, I guess.